The Privatization of Roads and Highways - Ludwig von Mises Institute

112 The Privatization of Roads and Highways
outdoor theaters, compared with the case in which all spectators
were forced to pay admission. Needless to say, it did not long
continue. In quite short order the owners in question erected
higher fences, forcing all those who valued the view to pay for it.
No longer was A conferring a benefit on B, unable to charge him
for it. With the advent of the fence, the truck drivers’ free view
was cut off. The choice open to B was to see the movie and pay
for it, or to not pay and not watch. If nonexcludability is the hallmark
of the externality, then the ability to exclude nonpayers
from the benefits, as here afforded by the fence, is the key to the
internalization.
The objection has been raised that a private market in roads
would result in underinvestment because the private developers
would not be able to reap benefits of their efforts associated with
increased land values and lowered costs of transporting goods.
Rejecting free enterprise, most economists call instead for
increased property taxes on the increased site value of land abutting
a highway by the amount of gain attributable to the
increased benefits conferred on the property by the road. 17 As we
have seen, however, this argument is without merit. External
benefits do not lead to underinvestment. On the contrary, the
prospective road builder can recoup the gains by internalizing
the potential externality. The ease with which this can be done is
evident when we reflect upon the fact that, before the actual
building process begins, the entrepreneur is the only one who
knows where the road is scheduled to be located (or even that a
road is intended to be built at all). All the prospective builder
need do is buy up territory likely to gain in value from his road
at the old, low prices, which do not reflect the increased values
likely to be imparted by the highway. 18
17David M. Winch, The Economics of Highway Planning (Toronto: University
of Toronto Press, 1963), p. 130, for example, calls for “taxes aimed to
recoup from property owners the costs of the road attributable to the traffic
which has conferred benefits on that property.”
18He may not be able or even willing to purchase all of the land that may
conceivably be benefited from his construction, but this will not affect the