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Managing Traffic by Privatization ofRoad Capacity: A Property RightsApproachEdwin Buitelaar a , Rob Van der Heijden a b & Raffael Argiolu aa Department of Spatial Planning; Nijmegen School ofManagement , Radboud University Nijmegen , Nijmegen, theNetherlandsb Department of Transport Policy and Logistics Organization;Faculty of Technology, Policy and Management , Delft Universityof Technology , Delft, the NetherlandsPublished online: 16 Oct 2007.

To cite this article: Edwin Buitelaar , Rob Van der Heijden & Raffael Argiolu (2007) ManagingTraffic by Privatization of Road Capacity: A Property Rights Approach, Transport Reviews: ATransnational Transdisciplinary Journal, 27:6, 699-713, DOI: 10.1080/01441640701262949

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Transport Reviews, Vol. 27, No. 6, 699–713, November 2007

0144-1647 print/1464-5327 online/07/060699-15 © 2007 Taylor & Francis DOI: 10.1080/01441640701262949

Managing Traffic by Privatization of Road Capacity:A Property Rights Approach

EDWIN BUITELAAR*, ROB VAN DER HEIJDEN*,** and RAFFAEL ARGIOLU*

*Department of Spatial Planning; Nijmegen School of Management, Radboud University Nijmegen, Nijmegen, the Netherlands; **Department of Transport Policy and Logistics Organization; Faculty of Technology, Policy and Management, Delft University of Technology, Delft, the NetherlandsTaylor and Francis LtdTTRV_A_226206.sgm

(Received 10 August 2006; revised 5 December 2006; accepted 30 January 2007)10.1080/01441640701262949Transport Reviews0144-1647 (print)/1464-5327 (online)Original Article2007Taylor & Francis Ltd0000000002007EdwinBuitelaare.buitelaar@fm.ru.nl

ABSTRACT Road congestion remains a serious problem, despite all the efforts to limitroad use and to manage growing road traffic volumes. Economic approaches (such aspricing) are introduced based on traditional welfare economic theory. Although they aresometimes very successful, the magnitude of traffic issues also requires alternative andunconventional approaches. Perhaps a more innovative perspective is needed. The paperdiscusses an alternative economic approach starting from property rights theory. It istranslated in transport systems in concepts of infrastructure capacity slot management,where slots are dynamically priced and exclusively allocated to individual users. Debatesand practices regarding this approach in air traffic and rail traffic are further developedthan in the field of road traffic. The paper aims to explore the potential benefits anddisadvantages of the property rights approach for road traffic. Attention is paid to majorinstitutional and technical conditions. The conclusion is that the approach theoreticallyhas clear advantages and seems technologically feasible. Nevertheless, serious political andinstitutional issues have to be solved first.

Introduction

As is known, the accessibility of cities in both industrialized and industrializingcountries is diminishing due to increased car ownership and usage as a result ofincreased wealth. Although a steady growing demand for the use of road infra-structure is being faced, in most cases it does not cost the car driver anything extrato use the road network. This often results in significantly more demand thansupply for road capacity, being the main reason for congestion. In most competi-tive markets the price mechanism would adjust demand and supply to each otheruntil they are approximately equal. A striking difference between the road traffic

Correspondence Address: Edwin Buitelaar, Department of Spatial Planning; Nijmegen School ofManagement; Radboud University Nijmegen, PO Box 9108, NL-6500 HK Nijmegen, the Netherlands.Email: e.buitelaar@fm.ru.nl

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market and other markets is that there are no private property rights related tothe use of roads. People do have their private cars, but road capacity is notprivately assigned and many roads are ‘freely’ accessible. What if road capacitywas privatized? Could that solve congestion problems?

Here one can draw a parallel with Bouckaert (1993), who in response to the‘queue phenomenon’ and, hence, the delays at airports (p. 77) suggested anairport slot allocation system where different slots have different prices (acompetitive market in slots), justifying this by an application of the propertyrights approach. The debate on slot pricing and management is vivid with respectto the air transport system (also, for example, Starkie, 1998; Koolstra, 2005) as wellas the rail transport system (e.g. Harker and Hong, 1994; Lerz, 1996). Since inintra- and inter-urban road traffic a similar queue problem is seen, to what extentcould a slot management system be a solution to congestion problems on theroads?

This question is approached, like Bouckaert, by using the property rightsapproach, which is one of the core approaches within law and economics. Thisapproach allows one to look at social costs (i.e. externalities) in a way that slightlydiffers from traditional welfare economics, which regards negative externalities(and thus congestion) as market failures. The notion of ‘market failures’ refers tosituations where the market does not or does not sufficiently take care of certaingoods. A welfare economic reaction would be the introduction or increase of agovernment tax. In the context of road traffic such a tax could be on car driving, acongestion charge such as in Central London. An alternative reaction could be toimprove public transport services to attract people away from the roads. Thosereactions could all be called government interventions in the market. Accordingto property rights theorists, it is not the market that fails but the way it is set upand institutionalized. From a property rights perspective the answer to those‘market failures’ might be found in a re-delineation and re-assignment of prop-erty rights, in this case by assigning access rights to individual car drivers. Hence,institutional changes are being dealt with to allow the market to function moreefficiently. How this could work will be discussed in more detail in this paper.This does not imply that many other solutions to traffic congestion, including thejust mentioned ones, are not being valued, as some are very effective. Theproperty rights approach is sketched mainly to broaden the debate, just to shed arefreshing light on a persisting problem and possibly trigger thoughts about newstrategies.

This is not the first paper to explore the possibilities of a slot allocation systemfor road infrastructure (e.g. Koolstra, 1999, 2005), but it is one of a few that is theo-retically underpinned. Moreover, in addition to the theoretical view on slotsystems, it is important to explore whether and how it could be technologicallyaccommodated. Here the paper will link to the possibilities offered by IntelligentTransport Systems (ITS). Much has been written in the last decade about ITS inrelation to car drivers’ convenience (such as cruise control), traffic safety (e.g.speed headway control or lane keeping), traffic information (e.g. congestionwarning) or travel information (e.g. multi-modal travel guidance), but very littleabout how ITS could be applied to create a system of privately owned accessrights. What is being provided in this paper is not an instantly applicable solutionto traffic congestion, but it must be seen as an exploration and thoughtexperiment of the necessary conditions for and possible benevolence of using themarket system, but also taking notice of its disadvantages.

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Managing Traffic by Privatization of Road Capacity 701

The paper is structured as follows. First, it will elaborate on the main economicphilosophy underlying the property rights approach. The third section thendiscusses the most essential prerequisites of the property rights approach: theexistence of rivalry and the exclusion of road capacity from the public domain.The fourth section addresses an important enabler of the exclusion strategy: theavailability and applicability of advanced information technology. The fifthsection focuses on some remaining technical–institutional issues for letting theapproach work. Finally, the sixth section ends with some brief final remarks.

Property Rights Approach: Some Basic Thoughts

The property rights approach falls within the broader law and economicsapproach, which helps one to analyse systematically the link between institutionsand legal structures on the one hand and economic problems on the other. Beforeelaborating the value of a property rights approach for the discussion about theprivatization of road capacity, the origins of the approach will be set out.

The property rights approach stems from Coase’s (1960) seminal paper ‘Theproblem of social cost’ in which he deals with the very basic assumption that nowunderpins property rights theory, namely that property rights matter.1 A good,like a piece of land or a road, is often only regarded as a physical entity. But whenone owns a good, one actually owns certain (or all) rights over that good.However straightforward this may seem, this view has long been neglected ineconomic analyses. However, it has significant consequences. The way propertyrights are delineated and assigned has, for instance, an important impact on thevalue of goods. It is known, for example, that spatial zoning in a certain areaintends to prevent incompatible land uses to emerge next to each other. This regu-lation of land use restricts property rights in land, for instance by limiting thepossibility of supplying housing in that area. This well-known mechanism has ledto an increase of property values of especially suburban housing. Moreover, some(e.g. Fischel, 1985) say that in the USA this value-increasing effect is the mainreason why zoning is used. This spatial zoning example demonstrates howimportant thinking in terms of property rights is. Besides its value as a positivetheory, the property rights approach also has a significant normative value(Posner, 1977, pp. 17–18). Bouckaert (1993, p. 80) argues that an economic analysisof the law helps to generate ideas to improve the efficiency of a system. Accordingto Bouckaert, one should make a distinction between two types of efficiency,namely that regarding the use of scarce resources and that regarding the alloca-tion of scarce resources among the users. Both will be dealt with here.

A resource is used optimally, from an economic point of view, when themarginal costs equal the marginal benefits. When the marginal costs are lowerthan the marginal benefits, there is still room for efficiency gains. And when themarginal costs exceed the marginal benefits, resource use is beyond the efficiencyoptimum since any additional use will lead to (more) losses. Although the equi-librium is an optimal and maybe even a utopian situation, ‘thinking on themargin’ (something inherited from the famous economist Léon Walras) is a kindof incentive structure to use scarce resources as efficiently as possible. Theseincentives are not apparent when goods are freely accessible and are unpriced.Those are what is called open-access resources (Bromley, 1991).2 As they do nothave a price, adding an extra unit will not bring along any marginal costs. Thisdisregard of the cost factor leads to a point where people start overusing the

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resource, which leads to externalities (i.e. social and environmental costs), e.g. thecosts that result from congestion. When private property rights are assigned,assuming rationally acting people and assuming a direct link between the use ofthe right and the price to be paid for it, the user will be forced to think on themargin and estimate whether the marginal benefits and costs are close to an equi-librium. Overusing a good is less likely to happen as it would soon raise the priceand therewith the marginal costs. And when those marginal costs exceed themarginal benefits, an actor will refrain from adding extra units.

The allocation of resources is also dependent on the way the property rightsregime is set up. The assumption in the property rights approach, as in manyeconomic theories, is that if the rights over resources are privately assigned, thepeople who value them the most will acquire them. The buyer who is willing topay the highest price is probably expecting the highest return. The result is, againin economic terms, that the resources are efficiently allocated.

When the property rights approach is related to road capacity, the questionarises whether this assignment of private property rights could also be applied tothe use of road capacity, and which conditions should be created to have a posi-tive impact. A crucial issue in this context concerns taking road capacity as apublic good out of the public domain. This will be addressed in the next section.

Taking Road Capacity Out of the ‘Public Domain’

In traditional welfare economics, externalities and public goods are often seen asmarket failures. The welfare economic solutions to these failures are often foundin government interventions. In case of market failures the government shouldprovide those resources—in the case of public goods—and internalize externali-ties—in this case congestion—by taxes, regulations or other incentives (such asproviding alternatives or stimulating awareness by communication). Propertyrights economists (such as Coase, 1960; Posner, 1977; Hirsch, 1988; and Barzel,1998) shed a different light on public goods, and the externalities that result fromthose public goods, and therefore implicitly on the default way of dealing withtraffic management. On public goods, they argue that the market fails to take careof these because the property rights over these goods are ill-defined, andtherefore lie in the so-called public domain (Barzel, 1998).

Barzel (1998) has brought the work of Coase on property rights a step further.Barzel argues that public goods give rise to ‘public domain’ problems. What itmeans is that problems arise when there are goods or attributes of goods thathave a value, but are ill-defined in terms of property rights. Public goods (i.e.open access goods) are goods that are unpriced, not because they do not have avalue, but because of the high costs of assigning property rights, the lack of politi-cal willingness or the technological unfeasibility to make them tradable. Theresult of this proprietary ambiguity is that these resources remain unpriced andare therefore inefficiently allocated (Webster and Lai, 2003, p. 108), as arguedabove. What follows from this is that solving this proprietary ambiguity andtaking them out of the public domain would result in a better developed andoperating market, which might result in more efficient use and allocation ofresources.

Applied to the central theme in this paper, this could theoretically lead to amore efficient use and allocation of road capacity. A prerequisite for a competi-tive market is the privatization of the right to use the road or get access to it, but

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Managing Traffic by Privatization of Road Capacity 703

not necessarily the road itself. This may sound strange for two reasons. Privatiza-tion is usually regarded as a process in which a state-owned good is turned into aprivately owned good, while here a non-owned resource as road capacity isturned into a privately owned resource. The other reason is that privatization inrelation to road infrastructure is generally interpreted in terms of the process inwhich the construction and the long-term maintenance of the road itself istransferred to one or more private parties. This bias is due to a general lack ofproprietary precision in discussions about privatization. Here the focus is on theprivatization of road capacity, and hence the user rights, which is not the same asthe privatization of full-ownership rights (which is explored by others such asRoth, 1998).

Property rights can be laid out in a bundle of rights. Several ways of separatingthe bundle of rights circulate. An often made (e.g. De Alessi, 1991) and usefuldistinction is between usus (the right to use a good), usus fructus (the right togenerate income from ownership of a good) and abusus (the right to transfer thegood from one party to another). These partial rights are nevertheless interre-lated. For instance, the right to derive income from a good (usus fructus) oftenonly gets value if the right to use can be exploited. The division in the three partialrights is very useful when revealing the change of ownership and rights assign-ment in the case of the privatization of road infrastructure capacity (Table 1). Theright to use is in this case equal to the right to have access to a road, and istherefore replaced by the ‘right to access’.

To identify the owner of a right, Table 1 uses Bromley’s (1991) distinction inprivate, common, state and open-access (or non-) property. When a road ispublicly owned, it is meant that the right to transfer and the right to income areheld by the state. As already stated, the right to access is open to everyone and istherefore actually non-property.3 All the three partial rights can be privatized,and not necessarily to the same private party. Once a road has been completelyprivatized, both the right to transfer and income have switched from the state tosome private party, in other words from a public to a private monopoly. Whenone looks at the right to access, the open-access good is changed in a good with alimited number of privately owned access rights. Given a larger demand foraccess rights than supply of such rights, a market in access rights is created. Theprivatization of the other two rights is by no means a necessary condition forthe privatization of the right to access; those could well remain in the hands of thestate, which could function as a manager, creator and enforcer of those rights.Hence, decomposing the bundle of rights and making the access rights alienable(for an example of the decomposition of rights in land, see Evans Stake, 2000) arenecessary steps to create a market in road capacity. The question now is are thereother conditions under which this market in access rights can be created, besidespolitical will?

Table 1 Publicly and privately owned road

Public road Private road

Right to transfer state private partyRight to income state private partyRight to access open access (every vehicle) private party (assigned vehicles)

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704 E. Buitelaar et al.

Before answering this question, one must determine which features aprivatized good must contain. Table 2 (based on Webster and Lai, 2003) shows atypology of goods ranging from pure private goods (A) to pure public goods (D).It shows two basic criteria: (non-)excludability in supply and (non-)rivalry inconsumption. Excludability refers to the right of the owner to consume the goodor resource exclusively, which hence excludes all others. Rivalry refers to the situ-ation where there is competition between suppliers and between users. Lindblom(2001, p. 92) states about the scarcity condition:

If a performance object is not scarce, offering it will induce no response.… If available without constraint—if everyone has all of each that hewants—no one would offer any for sale, and no one would buy.

There is no public domain problem with goods of type A. In case the consump-tion of such goods is rival, it makes them scarce resources. This scarcity leads to apoint where the value of these resources exceeds the costs of assigning exclusiveproperty rights. This is for instance the case with motor vehicles, which are pureprivate goods because they are scarce and because private property rights havebeen assigned. Therefore, these goods could be made exclusionary and capturedfrom the public domain. Type B goods are excludable but non-rival. McNutt(2000, p. 930) regards club goods (or common property) as type B resources, aspeople can be excluded (e.g. by requiring a membership), but are not rival like theroad capacity within a gated community. Goods of type C are rival but non-excludable. Actually few rival goods are non-excludable. If they are, the reasonsmight be institutional (including cultural and political reasons) or technological.It is therefore a transitional category, meaning that all the economic condition forprivatization are there, institutional or political inertia impair this. Category Dconsists of pure public goods. Although in practice there are examples of suchgoods, they are also rare. As seen with type C, almost every good is excludable. Inaddition, many goods that are presumed to be non-rival are (becoming) rival. Forinstance, clean air and fresh water, which are traditionally not seen as scarcegoods, are becoming scarce.

Road capacity in urbanized areas could be seen as a type C good, as the use isnot excluded at this moment and, looking at congestion levels in parts of thenetwork, it is rival in many cases. However, what also becomes clear from this isthat it is probably less likely that one can create a market in peripheral areas withrelatively little traffic demand, as the necessary condition of rivalry is lacking. Aroad is rival if people are prepared to pay a price for using it. The more rival thehigher the price becomes. This willingness-to-pay for the use of a road is a majorcondition for the privatization of road infrastructure (i.e. a transition from type C

Table 2 Typology of public goods

Excludable Non-excludable

Rival A CNon-rival B D

This is a dynamic typology as resources can change from non-rival to rival and from non-excludable toexcludable.Source: Webster and Lai (2003, p. 136).

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Managing Traffic by Privatization of Road Capacity 705

to type A goods). McNutt (2000, p. 930) mentions the transition of a congestedtoll-free bridge to a congested toll bridge as an example of a good that changedfrom a type C to a private (type A) good. However, this example does not entirelymeet the requirements of excludability. McNutt seems to think too much in termsof social–economic exclusion since not everyone might be able to pay the toll. Thephenomenon of social–economic exclusion has much to do with the availability ofand access to alternatives, e.g. high quality public transport services. In otherwords, it deals with the question whether people basically have a ‘here and now’choice between different transport services. In contrast, excludability in thecontext of the property rights approach means foremost excluding potential usersfrom the right to use certain roads at certain moments. Those who want to haveroad access have to buy an access right proactively, beforehand paying a pricethat is dynamically dependent upon the scarcity level. Due to a certain maximumof road capacity there is a limited number of access rights. If someone owns anaccess right, in other words a certain part of road capacity, he is the only one whocan exercise that right, through which others are excluded from that use. On a tollroad everyone receives an access permit when paying the toll. Although a price ispaid for using the road, the price is not the coordinating mechanism,4 since theprice is fixed and set by one road supplier. In a competitive market prices changedue to changes in demand and supply. Hence, the starting point and themechanisms are different between a toll system and a property rights regime.

Exclusion of people may sound unjust using ideological criteria as equalityand freedom of mobility (and should therefore be taken seriously), but isessential when the market as an allocating model of coordination is applied.No market can operate efficiently without exclusive property rights (Websterand Lai, 2003, p. 123). This principle is widely accepted in many other parts ofsociety.

Webster and Lai (2003) add other conditions for the creation of markets, inparticular the socio-political and technological condition. The first conditionincludes requirements such as political will and public support, which arebeyond the scope of this paper. The technological condition is very important forthe demarcation, administration and enforcement of access rights. A right oversomething is only a right if it is protected by the collective, or in this case theprivate party that exploits the road:

A right is the capacity to call upon the collective [in this case the agentwho sells or lets the access rights] to stand behind one’s claim to benefitstream (in this case the benefit of having access to the road).

(Bromley, 1991, p. 15)

To ensure that one has a full claim to an access right, it has to be technologicallypossible to demarcate that right in a way that only the holder of the right can useit, while others (the non-owners) are excluded.

Apart from technological innovation, slot management also requires an insti-tutional innovation, notably the organization of a market. This implies findinganswers to questions such as the following. Who owns the infrastructure slots?Does the infrastructure owner (often public authorities) also determine the priceof the slots? Should there be an independent market regulator? Is the trafficmanager who is organizing the traffic service for the user also become the

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collector of the fees? When a slot has been purchased and has been allocated, isthe user then (temporarily) owner and can he transfer the slots to others? Andso on.

Applying ITS to Create a Slot Market

Some have already shown that the emergence of technologies force institutionalarrangements to change. One example is property rights over information such asfilms or music on the internet. A convincing example in the world of transport ismentioned by, for instance, Ellickson (1993), who describes that, before theaeroplane era, rights on land in the USA comprised everything on the land itselfand everything above and underneath that land. When the aeroplane was createdthis had to change for it would be impossible to ask all individual landowners forpermission to cross their properties. Besides the notion that technology is a majorfactor behind institutional change, it can also be made instrumental for accommo-dating new institutional arrangements. Technological innovation has turnedmany publicly organized goods into more competitive markets, such as telecom-munications or energy supply. Within the field of transport there are manytechnological innovations, often shared under the abbreviation ITS (IntelligentTransport Systems). Here the authors are particularly interested in the applica-tions that can be used to create markets in road access rights, or capacity slots, touse the term used in the aviation sector.

ITS encompasses a variety of information and communication technology (ICT)-based devices and concepts for traffic and transport management, and is mainlyaiming at making traffic more safe and more reliable and optimizing infrastructureuse. Recent overviews of the diversity in ITS concepts have been published by, forexample, Giannopoulos (2004), Van der Heijden and Marchau (2005) and Lu et al.(2005). The dominant development is that ITS look for smart combinations of bettersupport of drivers of vehicles (advanced driver assistance systems, ADAS),improved travel information (advanced travel information systems, ATIS) andsmart devices for dynamic traffic management (advanced traffic managementsystems, ATMS). Many ITS devices are under development and some havereached maturity and been implemented in the market in the recent past (e.g.advanced cruise control, route navigation, or vehicle tracking and tracing systems).

Especially dynamic, short-term operational, slot management in intensivelyused transport systems requires a complex system of registration of demand,offering and selling slots, buyer and user identification, access permitting, andtraffic flow management. The use of information and telecommunication technol-ogy is crucial in that context.

Van der Heijden and Marchau (2005) argue that ITS in the future will be basedon a system of interaction between vehicle control (partly or perhaps completelytaking the driver out of the control loop), dynamic traffic flow management andmulti-modal network management. Hence, ITS will enable a large, perhaps evenfull, control of the use of the infrastructure network (car-following strategy, speedcontrol, lane use, and access and exit of vehicles to and from the network). More-over, ITS technology enables vehicle identification, the tracking and tracing ofvehicles, rapid incident identification, and incident response so as to guarantee ahigh quality of traffic service. ICT is necessary and available to inform potentialslot users, to facilitate booking and payment, both in advance (internet) and as real-time (an on-board computer in the vehicle) to permit road access.

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Managing Traffic by Privatization of Road Capacity 707

The conclusion is that ITS technology, which is necessary to create the righttechnical conditions for slot management strategies on the road, is partlyavailable or is expected to become mature in the coming decade.

Making the System Work

To make the system work various conditions have to be met and several ques-tions need to be answered. The third section discussed two important issues,namely excludability and rivalry. To start with the first issue, in order to create asystem of access rights one needs to delineate exclusive capacity slots and be ableto manage them properly. The question is whether that is possible. The secondissue, rivalry, means that only roads with a certain traffic demand might be madesubject of this approach. The related question is where and when the applicationof the access rights system makes sense? Next, the need for some institutionalinnovation is mentioned. In this context particularly the following questionarises: how and by whom the market should be managed? Also important is thequestion: is there a need for a certain degree of competition in the supply ofaccess rights and, if so, how can one avoid a supply monopoly? Finally, animportant question is: how does one allow for exchanges to proceed smoothlyand how can the transaction costs of the facilitating system be reduced? Thesequestions will be addressed sequentially, and the authors will not pretend tooffer all the answers, merely to raise some arguments and considerations forfurther discussion.

How to Delineate and Manage a Right?

Capacity slots can be delineated in both time and space, although there arevarious complicating matters. Capacity as such is not merely dependent upon thefeatures of the physical infrastructure (e.g. the number of lanes in a certaindirection, alignment, maintenance level, the number of access and egress points,infrastructure bottlenecks), but also upon variations in the speed of traffic flow,speed headway between vehicles, the mix of luxury cars and heavy vehicles,weather conditions, varying environmental restrictions, and the occurrence offlow-disturbing incidents. Koolstra (2005, p. 27), therefore, makes a differencebetween the theoretical maximum capacity, the actual capacity (a stochastic valuebetween zero and the level of maximum capacity), and the (for planningpurposes) available capacity: the number of vehicle paths that can be assigned aslot. The determination of the available capacity is based upon a pursued servicelevel, e.g. a minimum average speed of the traffic flow on a certain networkelement (throughput) or a guaranteed travel time for passing this element (reli-ability). Managing capacity involves in the long-term the strategic improvementof the structural conditions, such as reducing bottlenecks and improving themaintenance level. Tactical capacity management, according to Koolstra (2005,p. 34), is:

management through time and space specific decisions on traffic networkaccess that are made in advance.

Both strategic and tactical management are anticipatory forms of management.Operational capacity management deals with reactive operational decisions

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regarding the real-time traffic flow. An example is temporarily lowering thespeed limit.

The introduction of a system of access rights involves decisions at a tacticalmanagement level. The first decision is the specification of the maximum numberof slots. Koolstra (2005, p. 36) defines them as:

time–space domains on an infrastructure element to facilitate a specificvehicle path with a certain minimum quality of service.

A slot can be assigned for a specific element of the network (an elementaryslot) of a path through a network from origin to destination (a network slot).Different slot ‘sizes’ might be introduced, for example, depending on thenature of the vehicle: a long truck with an obligatory speed limiting deviceneeds a different time–space domain as compared with a luxury car. Koolstra(2005) argues that from an efficiency point of view, an overlap in slots mightbe considered, given time–space-related uncertainty in required slot sizes andthe general experience of a certain percentage of so-called ‘no shows’. A seconddecision is the allocation of the slots to users: the offering and selling of accessrights to the set of access requests. A request includes information about theidentity of the potential slot owner and the desired characteristics of the vehi-cle path (the vehicle type, access and exit point, and approximate time ofentry).

Finally, the management of the use of the access rights, the operational permit-ting of the use of allocated slots, has to reckon with margins in time (what is tobe defined as ‘on time’ versus ‘no show’?) as well as variation in place (‘correctlocation’ versus ‘other location’). As argued above, a right is only a right if it isenforced by the state or any other manager of the system. To enforce a right it isessential to introduce an electronic vehicle identification and access permitsystem. Access is denied in case no slot has been allocated in time. Due to fullcontrol of the traffic flow, requesting access is allowed up to a moment brieflybefore entrance to the system using the in-car board computer and telecommuni-cations. In case no slot is available at the expected entrance time or the scarceavailable slot has a too high price for the driver, another time window might beoffered or the driver chooses another option, such as taking another route orswitching to another transport mode. Payment could also be organized electroni-cally. Purchased slots might be transferred to others, e.g. by timely resellingthem to the slot manager who then might decide to offer them again on themarket.

What Should be the Scale of the System? Lane, Road or Network?

Since major congestion problems concern the network of motorways, andgiven relatively limited access points in the motorway network, it is plausiblethat such an electronic control system will focus on the network as a whole.Access to a part of this road network is allowed after the electronic check ofthe vehicle identity on the one hand and the match with the registered capac-ity slots on the other. Moreover, access points have to be equipped with facili-ties for permit check and physical entrance. Both conditions seem to refer tofunctionally higher-order road networks. Already mentioned is the potentialdanger of social exclusion. This becomes particularly reality when the slot

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system is applied to crucial links in a network (e.g. a river crossing) in acontext of a lack of alternatives. The issue of social exclusion is significantlyreduced in case alternative travel options with approximately the same qual-ity are available for travellers. Hence, social exclusion does not exist where areal choice is possible.

From that perspective, a system of dedicated lanes on a motorway network,combined with lanes for traditional (that is open-access) traffic, is an option.Car drivers choose between a free-flow lane with an extra price versus acongested no priced lane taking considerably more time. Such a system doesseem to offer a choice to travellers. However, it does not offer a choice for areal alternative transport service (such as public transport or the bicycle) andonly discriminates between drivers with a low or with a high value of time, orbetween drivers that can and those that cannot afford the price. Transport econ-omists have argued that such a system is not very effective from a societalpoint of view: congestion remains or becomes even worse due to the fact that apart of the infrastructure capacity is reduced. Alternatively, one can think of asituation where the access rights regime is applied to a whole urban motorwaynetwork. Instead of using this network by car to enter the urban area, alterna-tives might be offered to car drivers such as a system of park-and-ride (P&R)facilities at the edge of this urban network. In order to become an attractivealternative for car drivers, these P&R facilities should offer access to high-quality connecting public transport services within the urban area for accessto various urban locations. In that case, car drivers have good alternatives:either using the P&R services or continue travelling by car based on slot reser-vation and extra payment. Since in that case the volume of car traffic in and outthe city will be significantly reduced, slot management contributes to reducingthe present environmental and accessibility problems. As Wong (1997) states,the main reason for an advanced booking system at highways is that it is theonly concept that promotes sustainable travel patterns in overloaded trafficsystems.

Who Manages the Market?

It might be clear that the management at the three earlier mentioned levels—stra-tegic, tactical and operational—requires an agency or multiple agencies that areresponsible for these activities. These road managers could be either (semi-)publicor a private agencies. As Wong (1997, p. 109) states:

For private enterprises, the system may help to create profit. For publicenterprises, it can produce social welfare maximization.

The privatization of the right to access does not necessarily have to lead to theprivatization of the rights to income and the right to transfer. The state mightdecide to exploit the road by privatizing the right to access. This enhances thepossibilities to manage and control traffic. In that case, the state decides howmany rights (or slots) are sold based on a trade-off between congestion and trafficthroughput. Slots might, however, also be assigned from an environmental pointof view, for instance based on noise or air quality standards. To keep emissionlevels down, the responsible government agency can decide to sell only a limitednumber of slots.

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710 E. Buitelaar et al.

How to Create a Real Market of Multiple Buyers and Multiple Sellers?

There is quite some misunderstanding about what a market is. Many policy-makers and academics seem to think that privatization is a sufficient criterion togenerate the benefits of the market. But privatization from one public supplier toa private supplier is no more than transferring the good from a public to a privatemonopoly. There are problems with this in many countries in the energy, waterand railway sectors. Hodgson (2002, p. 44) states:

Markets involve multiple exchanges, multiple buyers and multiple sell-ers, and thereby a degree of competition. A market is an institution inwhich a significant number of commodities of a particular, reasonablywell-defined type are regularly exchanged.

In the transport system, the condition of multiple buyers is easily met becauseparticularly congested roads are considered. In addition, one also needs to makesure there is a certain degree of competition on the supply side. One option todeal with this issue is a road manager (whoever that is) who makes sure the slotsare assigned to several intermediaries who henceforth compete on prices witheach other to attract as many buyers as possible. This would mean the creation ofmultiple sellers at the same time.

How to Reduce Transaction Costs?

What has been learned from new institutional economics is that markets functionmore efficiently when there are fewer and lower trade barriers, e.g. when transac-tion costs are reduced. Transaction costs consist of costs that come into playaround contracting, such as identifying possible buyers and sellers, contractformation (negotiation and bargaining), contract adjudication, and monitoringand enforcement (Furubotn and Richter, 1991, p. 9). One major trade barrier thatgives rise to transaction costs is insufficient information. To optimize informationto buyers and sellers of slots as much as possible, information and telecommuni-cation technology should be used to connect both stakeholders to each other. Oneway is to use website technology in the context of pre-trip planning, whereas on-board computer and communication facilities in vehicles might also be anattractive option to arrange real-time and dynamic trading. These facilities couldprovide information about the right, its time–space demarcation, its sellers, thepotential buyers, the prices and price differences, etc. Many markets, such ashousing, use websites; while nowadays, for example, on-board navigation andlogistics systems provide essential traffic and trade information to commercialfreight transporters.

Besides the notion that property rights matter, Coase (1960) illuminated theimportance of transaction costs. His premise is that organizations and institutionsarise and change so as to economize on transaction costs. Coase makes no a prioridecision for one institutional arrangement, although some have labelled him alibertarian. He states that different institutional arrangements (e.g. propertyrights regimes) should be compared on the transaction costs they produce. Thiscomparison of transaction costs should include both the costs of setting up orchanging the institutional arrangement and the costs of exchanging within thearrangement (North, 1990). The alternative put forward should be subjected to

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Managing Traffic by Privatization of Road Capacity 711

such a comparative analysis, in which it is compared with the existing situation,and rival schemes such as road pricing and full privatization as Roth (1998) advo-cates. The result should be a judgement on which institutional arrangementproduces the pursued outcome (e.g. less congestion or delivering a higher servicelevel) most efficiently.

Conclusions

The paper has explored some of the aspects related to the application of prop-erty rights approach to road traffic. The idea of property rights stems from insti-tutional economics and might be applied to the right of access to road networkswith (dominantly) a high level of congestion. This was translated in the conceptof the specification and trading of a number of road capacity slots lower thanthe demand. A crucial prerequisite for such a system is the full use of therapidly developing possibilities offered by advanced information and telecom-munication technology. Application of this technology, as studied, designed andtested in the field of Intelligent Transport Systems, offers possibilities to obtainfull control on microscopic vehicle behaviour and macroscopic traffic flowbehaviour in interaction with road capacity characteristics. By focusing on situa-tions where travellers (car drivers) have a real choice, the potential benefits ofthe system are optimally used. In particular the authors think of access to urbanareas where good public transport alternatives can be offered and congestion isoften severe.

Unavoidably, the concept generates many complex questions. Some wereaddressed in this paper and again it is stressed that only some of the ins and outsof these questions were discussed as a thought experiment. Many more thoughtsand in-depth research should be given to it before it reaches the status of a matureconcept or even a state of implementation. However, traffic problems are toosevere and the limitations of present policies too clear to close the eyes forpossibly new and theoretically promising avenues.

One major issue for the political agenda is the question about what the advan-tage is of a system of slot management as compared with the present thoughtsabout (flexible) road pricing. There are clear similarities: both strategies follow thedesire to apply economic coordination principles to road traffic. Both strategiesstart from the assumption that road capacity can be considered as a scarceeconomic good that is not well priced in the present open-access approach, lead-ing to severe over-consumption. The basic difference is, however, that debatedroad pricing strategies focus on fixed prices: prices that are not dynamicallyadapted to the real scarcity situation and not tailored to the variation in the will-ingness-to-pay of road users. Moreover, these prices are to a considerable leveldetermined by the desire to limit social exclusion. Consequently, it does not guar-antee the reduction or even elimination of congestion. The danger is that manycar drivers might experience road pricing without service quality improvement asa mere extra cost for travelling without benefits. As argued, in contrast, slotmanagement is built on the idea of exclusion and the price is dynamically setbased on the actual demand–supply balance. Its application requires an activerole of the driver, forcing him/her to make a clear choice between costs and bene-fits. Combined with applications in a context with real choice alternatives avail-able (which is considered an important prerequisite for applying the approach),this creates a significantly different context for the car driver as compared with

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traditional road pricing. That in the end slot management does create some formof social exclusion seems acceptable from that point of view.

Notes

1. Besides the notion that property rights matter, Coase illuminated the importance of transactioncosts. His premise is that organizations and institutions arise and change so as to economise ontransaction costs. Therefore, different institutional arrangements (e.g. property rights regimes)should be compared on the transaction costs they produce.

2. And not the common goods as Hardin (1968) and Bouckaert (1993) argue; when a good is held incommon property there are usually rules that administer the interaction between the commonowners (Bromley, 1991).

3. Note that ‘open’ does not mean open to everyone, but open to anyone who has a right to drive acar. This means that people should be over the minimum driving age, be in possession of a validdriving licence, be in possession of a certificate of motor insurance, and be, if suffering fromcertain medical conditions, in receipt of medical authorization.

4. That would be authority (or command and control). Note, however, that the road manager is byno means free to levy every price he wants, since there might a price threshold at which cardrivers decide to travel by an alternative mode. In that sense, there is a market between differentmodalities. However, people do not easily shift transport modes.

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