The Privatization of Roads and Highways - Ludwig von Mises Institute

Public Goods and Externalities: The Case of Roads 111
direct proportion to the smooth functioning of the roads; and the
fewer the negative externalities, the more attractive will his place
of business be, and the more he can charge for additional amenities.
This relation may be difficult to perceive in the case of roads,
for we are not accustomed to thinking of roads in terms of private
ownership. Let us consider, then, an example which will make
the process clearer. A loudmouthed, swaggering drunkard is an
external diseconomy on a public (unowned) street. He frightens
passersby, but as long as he does not violate any law, no incentive
to forbear is placed upon him. Let this same worthy put in an
appearance in a nightclub, however, and he is no longer an external
effect on his fellow customers. He no longer can adversely
affect them and expect to be free of countersanctions. He has now
been transformed into an “internal” financial liability to the
nightclub owner. It is no longer true that A can act without
“tak[ing] into account these costs imposed by him on others,” for
C, as the owner of the premises, has the lawful right to force A to
take account of these impositions by throwing him off the premises
if need be. In the private club, the victims (B) of A’s unsavory
actions cease to bear the complete burden. Though they are the
initial sufferers of A’s excesses, it is the work of a moment to
depart for greener nightclub pastures. The real loser is C, who
stands to lose not only revenue, but his entire investment, should
his nightclub become known as one that tolerates the likes of A.
The existence of bouncers and private guards shows that nightclub
owners take seriously the threat of external diseconomies
offered by the drunkards of the world.
The drive-in movie furnishes us with a case in which external
economics were successfully internalized. When pornographic
films were first shown at outdoor theaters adjacent to highways,
they created quite a stir. Row after row of tractor-trailers were
seen parked at the shoulders of roads, their operators perched
atop their cabs to view without paying admission. These spectators,
B, received the positive externality (namely, the view of the
screen) from A, the theater-owners. Had this situation been permitted
to continue, it might have created an under-investment in