The Privatization of Roads and Highways - Ludwig von Mises Institute

Public Goods and Externalities: The Case of Roads 99
purchase and use of supposedly private goods. Take, for example,
the paradigm case of a private good, socks. First, there is a
health question. People who do not wear socks are liable to colds,
sore feet, blisters, and possibly pneumonia. And sickness means
lost days of work and lost production; it means possible contagion
(as in the diphtheria case); it may result in rising doctor bills
and increased health insurance premiums for other policyholders.
Increased demand for doctors’ time and energy will result in
reduced medical attention for others. There is, in addition, an
aesthetic problem: many people take umbrage at socklessness.
Restaurants often forbid bare feet, presumably in the interests of
retaining their more sensitive customers. Not wearing socks is
also interpreted by some as a disturbing political statement, like
flag or draft-card burning. Many mothers—a third party, if ever
there was one—rejoice when their “hip” sons finally don
footwear. That benefits of sock-wearing “spill over” to these
mothers cannot be denied.
The problem is by no means limited to the socks example, for
all so-called private goods affect second or third parties in some
way. The reader is challenged to think of any item the use and
purchase of which is not affected with a public interest, i.e.,
which does not similarly have spill-over effects on other people.
Misguided though the definition may be, the externalities
argument still has strong influence. Many economists continue to
claim that to the extent that externalities are present, “market
imperfections” are created and government action is justified to
remedy the situation.
EXTERNAL ECONOMIES
Leaving aside these objections for the time being, let us consider
the externalities argument as it applies to roadways. The
argument assumes that roadways are an instance of positive
externalities. Any entrepreneur who constructs a road will have
to bear all the costs (of labor, materials, etc.), just as in any business,
but since highways are an external economy, he will be
unable to reap rewards proportional to the benefits provided. For