Optimal user charges and cost recovery for roads in developing countries

The optimal charge for road use is equal to variable costs for road maintenance, together with the costs road users impose on other road users and on the rest of society. One persistent question raised about such charges is what impact they have on cost recovery. The theoretical literature argues that if there are constant returns to scale in road construction and in road use, the optimal user charge will recover the capital costs of the road network and the total expenditures on road maintenance. Empirical estimates for such a system of road user charges in Tunisia similarly suggest that they would generate twice the revenues currently spent on roads. The authors examine these issues from both theoretical and practical perspectives. They conclude that there are substantial economies of scale in both road construction and road use. Also, road maintenancecosts include a number of fixed costs that do not vary with traffic. Moreover, since roads cannot be smoothly adjusted to traffic, marginal costs for the entire road network are significantly lower than average costs in most developing countries, unless capacity is artificially constrained by environmental or other constraints. Under these conditions, optimal user charges result in a substantial financial deficit. The authors also address the question of how this deficit should be financed.