Are Highways best run by concessions? The Italian experience

Highways in Italy were built on a “cost of service” principle, but in 1999 the regulatory system was changed into a “price cap”. The new system has failed in its purpose to relate tariffs to productivity or quality improvements, while it has allowed a dramatic increase in concessionaires’ profits. The State obtained a large profit from the privatization of Autostrade, by extending its concession for 20 more years. Financing highways through project financing has numerous drawbacks, mainly fragmentation and irrational pricing. Regulation is difficult and inevitably discretional, with a high risk of “capture” of the regulator. Benefits from competition could be better obtained through unbundling.