Predatory Tunnel Monopolies: Better Than Nothing?

Lewis Lehe defends the Hampton Roads bridge privatization scheme on the grounds that it may be creating a predatory monopoly that over-charges for non-peak access but this is better than the typical example of a public sector entity that under-charges at peak times creating traffic jams and under-investment. That may be correct, and he bolsters it with a “conservatives are dumb” political economy story: “many agencies have learned the true lesson that road pricing is good, but when governments themselves try to price, they are shouted down by conservative groups. When the government sells an asset to a private company to price, conservatives will endorse it.”

Again, maybe so. Politics is the art of the possible. But as a writer I mostly want to help people understand the issues correctly. My main point here isn’t that privatization is good or bad, but that if you’re going to privatize multiple crossings of a single river you should insist they be sold to different companies! Two crossings are never going to be perfect substitutes for each other so you’ll never have perfect competition, but perfect competition is rare in life and some competition is always better than none. The correct approach is to put the two crossings in the hands of different firms and leave the door open to the possibility that if these turn out to be super-profitable bridges that maybe some third company will come in some day and build a new one.

The larger point is that no matter what political economy glasses you put on, there’s no substitute for public officials who do the right thing. The tolls that the private monopolist will charge here have largely been set in negotiation with the Virginia Department of Transportation. If the VDOT can’t be trusted to toll the tunnels properly in the first place, what reason do we have to believe that they’re negotiating the correct deal with the private owners? It looks pretty clear to me that they’ve agreed to a too-high off-peak toll, and for all I know they’re also insisting on a too-low peak hours toll. And, again, that’s not necessarily because they’re incompetent. Public officials may negotiate bad deals with private entities for the same reason they misprice publicly owned infrastructure assets—the sad but true story is that the public has not yet widely embraced congestion tolling principles. Every time I find myself in a predictable traffic jam, I curse the failure to properly price road access. If the median driver had the same reaction, public officials would start pricing the roads correctly! But as long as people don’t believe in the overall theory of optimal road pricing it’s very difficult to use privatization or anything else to “trick” the system into getting it right.