JOINT TRANSPORT RESEARCH CENTRE

Discussion Paper No. 2009-18
December 2009

Interurban Passenger
Transport: Economic
Assessment of Major
Infrastructure Projects
Ginés DE RUS
University of Las Palmas de Gran Canaria
Spain

SUMMARY

ACKNOWLEDGEMENTS ....................................................................................................................... 2
ABSTRACT ............................................................................................................................................... 3
1.

INTRODUCTION .............................................................................................................................. 3

2.

LONG-TERM PLANNING FOR INTERURBAN PASSENGER TRANSPORT............................ 53.

HIGH SPEED RAIL INVESTMENT AS AN IMPROVEMENT IN INTERURBAN TRANSPORT
74.

FUNDING OF TRANSPORT INFRASTRUCTURE AND ITS EFFECTS ON
PROJECT SELECTION .................................................................................................................. 10

5.

CONCLUSIONS .............................................................................................................................. 13

ANNEX .................................................................................................................................................. 14
REFERENCES ......................................................................................................................................... 23

Las

Palmas,

July

2009

ACKNOWLEDGEMENTS

The author is indebted to Kurt Van Dender for useful comments and suggestions, to Jorge Valido
for his work as research assistant and to Carlos Huesa and José Luis Pertierra for providing data andinformation on some intercity bus concessions affected by the introduction of high-speed rail. The use of
the AENA database for air traffic is also gratefully acknowledged.

2

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

ABSTRACTThe future of interurban public transport will be significantly affected by public sector decisions
concerning investment in infrastructure, particularly the construction of new high-speed rail lines inmedium-distance corridors where cars, buses, airplanes and conventional trains are the competing modesof transport. The distribution of traffic between the alternative modes of transport depends on thegeneralized prices, which fundamentally consist of costs, time and government’s pricing decisions.
High-speed rail investment, financed by national governments and supranational institutions such as theEuropean Union (EU), has drastically changed the previous equilibrium in the affected corridors. This
paper discusses the economic rationale for allocating public money to the construction of high-speed rail
infrastructure and how the present institutional design affects the selection of projects by national andregional governments, with deep long-term effects in these corridors and beyond.
Keywords: infrastructure, incentives, project evaluation, high speed rail, intermodal competition.

1. INTRODUCTION

This paper addresses a crucial issue for the future of interurban passenger transport networks, i.e.
the influence of public decisions on large infrastructure investments that will change the present
equilibrium in intercity transport. It will focus mainly on the massive investment in high-speed rail
(HSR) infrastructure that some national governments and supranational organisations, such as theEuropean Commission, are helping to make through direct investment or by co-financing national
projects under very favourable conditions.
The future of interurban transport is expected to be dominated by strict budget constraints and theintroduction of efficiency-oriented policies affecting pricing and investment decisions, such as theapplication of polluter-pays and user-pays principles and the planning of infrastructure on a strict
economic basis. The ultimate objective is to have an “integrated and sustainable transport system” that
promotes economic growth and social cohesion (European Commission, 2009).
Investment in infrastructure requires significant public funds. The type of assets invested intransport infrastructure are essentially irreversible and subject to cost and demand uncertainty, so the
optimal timing is a key economic issue, since the investment decision can be delayed in most cases(Dixit and Pindyck, 1994). These characteristics give a significant value to the option to invest, which isin the hands of governments that own the land or can expropriate it. In the case of intercity transport,
most of the corridors are already in operation and investments in large projects, such as high-speed rail
infrastructure, can be viewed as a change in the generalized cost of travelling (time and cost savings,

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 20093

reliability, comfort and safety, etc.) with respect to the situation prevailing without project (de Rus andNash, 2007; de Rus, 2008).
Infrastructure and services do not follow the same long-term planning criteria. Private service
operators, including car owners, decide how much and when to invest in new capacity, and this also
includes technology. Private airlines decide which type of aircraft to buy depending on their demand
expectations and business strategies. There is strong evidence that the competitive air transport industry
works reasonably well (Morrison and Winston, 1995; 2005). This is also true of bus transport, at least
under a concession regime (Nash, 1993; Mackie and Preston, 1996; Preston, 2004).
On the other hand, roads, airports, ports and railway tracks and stations ultimately belong to the
public sector (with some exceptions), and although many crucial transport decisions are in the hands ofprivate operators subject to market discipline, the public sector can heavily influence future modal split
and the configuration of transport networks through investment, pricing and regulatory decisions
affecting capacity.
This is the case with high-speed passenger trains operating largely within the public sector both in
the areas of infrastructure and services. The construction of new lines in the European Union (EU),
China’s announcement that it intends to spend $162 billion to expand its railway system and the decisionof the US government to include HSR passenger services as a centrepiece of national transport policy
has given a new endorsement to this technology that may promote the expansion of railways in intercity
transport.
From an economic perspective, the question is quite simple: is HSR socially worth it? And theobvious answer is: it depends. HSR is a rail technology that allows trains to travel faster than cars, buses
and conventional trains, but more slowly than commercial aviation. Like any other technology, HSR is
not inherently good or bad. Its social value resides in its ability to solve transport problems that are
significant enough to justify its opportunity cost. Cost-benefit analysis can help answer this crucial
question, but we do not need to go any further to maintain that the economic case for HSR investment
depends on the prevailing conditions in the intercity corridor where the construction of the new line isplanned, in particular the level of demand, the degree of congestion, value of time, expected timesavings from diverted traffic, generated traffic and the net external effects.
The context in which the social appraisal of projects is carried out cannot be ignored in theeconomic analysis of major infrastructure projects. The institutional design is a key element forunderstanding public decision-making when different levels of governments are involved, as it is thecase in the EU or generally when the national and regional governments of the same country do notnecessarily share the same objectives, particularly with regard to where public investment should be
made.
This paper addresses these long-term planning and assessment issues which affect the future ofinterurban transport. In Section 2, the long-term challenges in intercity transport are considered, bylooking at the differences between the alternative modes of transport in medium-distance corridors
where air, rail and road compete and where public investment decisions concerning infrastructure deeply
affect market equilibrium. In Section 3 we discuss the conditions under which public investment in HSR
infrastructure can be socially worthwhile. In Section 4, the incentives associated with national or
supranational funding are considered, showing the relevance of the institutional design affecting thefunding of large infrastructure projects. Finally, conclusions are drawn in Section 5.

4

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

2. LONG-TERM PLANNING FOR INTERURBAN PASSENGER TRANSPORT

Medium-distance intercity corridors (around 500 km) with road, air and rail transport in open
competition have a modal split equilibrium that is very sensitive to small changes in the generalized
prices of the alternative modes of transport. The differences between these modes of transport are quite
obvious, but they have several things in common. On the supply side, they all need infrastructure toprovide services combining vehicles, labour and energy under private or public ownership, and with
infrastructure and operations vertically integrated or unbundled; and on the demand side, they all
involve a transport service carrying passengers who have to pay different generalized prices in terms ofmoney, time, quality and safety.
Air, maritime and road transport are vertically unbundled and different operators use a common
infrastructure, sometimes with free access and sometimes with payment of an access fee (toll, price,tariff, etc.). Usually the operators are private and the infrastructure is public or privately operated undera concession contract. Road, air and maritime transport services are vertically separated from theinfrastructure operator, and railways are unbundled in some cases and vertically integrated de facto in
the case of high-speed trains operated by a single firm with the exclusive use of dedicated infrastructure.
Buses and cars share the same roads, competing airlines share airports and high-speed rail is technicallyoperated as a single business, even if, from an organizational standpoint, the maintenance and operationof the infrastructure are separated from service operations.
HSR has other advantages over airlines beyond vertical integration (with subsidized prices),
reflecting some structural differences. Airports and airlines would still serve a large number of markets
using the same airport capacity, and it is not clear that airport congestion management would be betterwith vertical integration. The HSR advantage in this case is that capacity is used to serve a very small
number of markets (O-D pairs), and this makes it possible to reach very high levels of reliability.
These differences on the supply side have significant impacts on the demand side. The vertical
integration of infrastructure and operation in the case of HSR is a significant advantage with respect to
air transport in terms of the generalized costs of travel. HSR is more reliable than air transport, andaccess and waiting time much less cumbersome. Airport and airlines managers do not necessarily havethe same objectives and, as a matter of fact, the generalized cost advantage of HSR lies outside thetravel-time segment of the trip. In the case of roads, the differences are even clearer. Road infrastructure
and operations are vertically separated. In contrast with the single operator of HSR, there are many users
driving their own cars with free access (sometimes paying a toll) to a limited-capacity infrastructure.
Road transport has the advantage of reducing access and waiting time to almost nothing and the costdisadvantage appears in the travel-time segment.
Investment in HSR changes the equilibrium in the interurban corridor through its impact on thegeneralized price of rail travel. Compared with conventional rail, HSR services barely affect access,egress and waiting time. The main impact is on travel time with a magnitude depending on theprevailing operating conditions of the conventional rail (one hour or more when conventional trains run
at 100 km/h, but around half an hour when the operating speed is 160 km, over a distance of 450 km(Steer Davies Gleave, 2004). Road passengers travelling medium distances benefit from travel-time
reductions but lose in terms of access, egress and waiting time. The comparison of the generalized costs
G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 20095

of HSR and air shows a contrasting picture with respect to road. HSR is competitive over medium
distances, but loses its competitive edge for long distances (Campos and Gagnepain, 2009).
Time savings are not the only consequence of HSR investment. The reduction in the generalized
cost of travel generates new trips, and the diverting of traffic from other modes of transport may
contribute to the reduction of congestion, accidents and environmental externalities. Unfortunately, thenet impact on the alternative modes is not necessarily positive. The reduction of congestion is one effecton those who continue to use the previous mode of transport, but the reduction of operations in response
to lower demand volumes affects negatively the adjustment to travel preferences of those users.
Before we discuss the benefits of HSR and the social value of channelling public funds to develop
it, it is helpful to see the dominant trends concerning the future of interurban passenger transport. An“integrated and sustainable transport system” is the declared objective of most transport programs allover the world. It is far from evident what that objective means. It can include different actual transport
policies with different degrees of public intervention, particularly with regard to investment decisions
and pricing.
The development of a transport network is the result of the interplay of private and public decisions
within a context of sometimes unpredictable changes in society and particularly in the economy. For
long-term planning purposes, it is worth looking at the discussion of future trends in European transport
by the Focus Groups for the European Commission in connection with the development of the White
Paper on transport policy (European Commission, 2009) looking 40 years ahead. We are not interested
here in some of the predictions, which are impossible to verify at present. Nevertheless, it is very
informative to find out how they understand transport issues and what their public policy
recommendation is insofar as this vision informs European transport policy1.
The present context is one of tighter budget constraints, a situation that is going to worsen in the
future given the present economic recession and growing public deficits. Increased ageing and thegrowing dependency rate, on one hand, and the need to devote more funds to repairing, upgrading andrenewing existing infrastructure, on the other, will reduce the funds available for the transport sector andusers will have to pay more than in the recent past, both for the internalization of externalities and cost
recovery.
The following summarizes some of their positions on infrastructure and pricing policies:
The importance of transport for economic development, the growth of transport demand and theneed to maintain and upgrade existing capacity as well as constructing new capacity require
direct charging for transport services. Both the user-pays and the polluter-pays principle will
have to be translated into practical pricing decisions.
Tighter budget constraints and the introduction of user charging will promote private
participation. Private operators will assist in the construction and operation of transport
infrastructure. The regulatory framework is crucial in order to provide the right incentives to get
the best results from private participation.
Planning of infrastructure plays a decisive role in ensuring coherent and uniform development at
the European level. The construction of new infrastructure should be conditional upon theexistence of real needs, as determined by the economic appraisal of projects.

6

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

Infrastructure design should facilitate the use of environmentally-friendly energy resources andbe integrated with land planning and transport solutions. Co-modality should be encouraged
through a common and integrated ticketing system, common terminals and platforms, etc.
Economic efficiency requires that prices reflect all costs. External costs have to be internalized
and this has an impact in the short run by promoting an efficient use of existing infrastructure,and in the long run by providing long-term signals to investors that will gradually transform thetransport system. Pricing is more effective in changing modal split than other policies.
The efficient use of the network can be achieved through liberalization, which facilitates market
entry and reduces administrative barriers. This would be especially helpful in the case ofrailways. Regulations to correct market failure should be designed to remove the considerable
barriers to a level playing field in the transport sector (especially in the context of intermodal
and international competition).
In a situation of intermodal competition with road, air and rail transport fighting for customers, it isuseful to analyse how HSR investment responds to these long-term objectives.

3. HIGH-SPEED RAIL INVESTMENT AS AN IMPROVEMENT IN
INTERURBAN TRANSPORT

In a given corridor, a HSR project has total infrastructure costs equal to I in the base year, andthanks to the supply of high-speed trains using this infrastructure, social benefits (net of annual
maintenance and operating costs), denoted by B, are generated in the first year of operation. These net
benefits grow annually at a rate of g. The infrastructure has a lifespan of T years and the discount rate isequal to i. Within this framework and assuming that i is greater that g, investment is socially worthwhile
if the following condition is satisfied:

B 1 (1 g )T (1 i) T (i g ) 1

I (1)Two key values in expression (1) are the rates g and i. Expression (1) simplifies to (2) when the
project lasts forever:B(i g ) 1

I

(2)

Let us simplify and assume that condition (2) is satisfied or, alternatively, that the growth rate of
net benefits is higher than the social discount rate ( g i) . In both cases the net present value is positive,
though in the second case any positive value of B is compatible with a positive NPV. In practical terms,
this last case translates into a very favourable case for HSR investment, as the net present value ispositive even starting with a low demand volume.2 In this case of exponential growth of net benefits, apositive net present value is not a sufficient condition to accept the project. The question “is HSR
socially worthwhile?” cannot be answered without addressing the problem of optimal timing.

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 20097

Even disregarding the additional benefits of relevant information which reveals when theinvestment is postponed, we have to address the question of optimal timing. Unless the benefits of thefirst year are greater than the opportunity cost of the investment, it is better to delay the investment
decision even if the net present value is positive. Ignoring for simplicity the net benefit in year T+1, it issocially worthwhile to invest in HSR when:3

B

Ii (3)For a given social discount rate condition (3) is satisfied if the first year’s net social benefits ofintroducing HSR in a corridor offset the opportunity cost of allocating I to this project rather than toother social needs. In expression (3), B accounts for the net social benefits in the first year, and thisbasically includes the time savings obtained by diverting traffic to the new mode, the benefits ofgenerated traffic, the increase in quality and safety, the reduction in congestion, accidents and othernegative externalities in alternative modes of transport, the release of additional capacity for other kindsof traffic (e.g. rail freight and long distance in airports) and the change in the operating and maintenancecosts of moving the volume of passengers in the corridor because of the project (excluding theinvestment costs).
These net benefits in the first year depend heavily on the specific characteristics of the corridor andhow the new line affects the generalized cost of travel. In order to offset the investment opportunity
costs, a significant volume of demand is required in the corridor to offset the high cost of the investment.
The cost of constructing one kilometre of HSR infrastructure ranges from 12 to 40 million euros, with anaverage of 18 euros, and these values do not include planning and land costs and main stations. The
costs are quite sensitive to the terrain characteristics and the need to cross high-density urban areas(Campos and de Rus, 2009).
The benefits in the first year of operation are very sensitive to the ability of high-speed trains todivert traffic from highly congested modes of transport. The introduction of a HSR line in a 500 km
corridor with an uncongested road and good air transport connexions is hard to justify unless several
conditions are met: a high volume of demand shifting from the other modes of transport, a significant
reduction in total trip time, the generation of new demand, the reduction of negative externalities and ahigh willingness to pay for these benefits.
The expected time saving (and its composition) obtained with a HSR project is very sensitive to theoriginal transport mode in which passengers were travelling previously. A passenger shifting from roadto HSR saves travel time but increases access, egress and waiting time. On the other hand, a passenger
shifting from air transport to HSR increases his travel time and saves access, egress and waiting time. 4
The passenger shifts if the HSR generalised price is lower than in the original mode, and this canhappen, even if the total trip time increases, when the HSR fare is low enough to offset the longer trip(de Rus, 2008).
The existence of network externalities is another alleged direct benefit of HSR (see Adler et al.,2007). Undoubtedly, a dense HSR network offers more possibilities to rail travellers than a lessdeveloped one. Nevertheless, we are sceptical of the economic significance of this effect. We do notargue against the idea that networks are more valuable than disjointed links. The point is that when there
are network effects it should be included in the benefits at a route level already discussed. Although railpassengers gain when the wider origin-destination menu is in a denser network, the utility of a specifictraveller who is travelling from A to B does not increase with the number of passengers unless thefrequency increases, and this effect (a sort of Mohring effect) is captured at a line level.

8

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

Time savings come from diverted traffic. Generated traffic increases total travel time but produces
benefits insofar as the passengers are willing to pay the generalized cost of travel. Diverted traffic hasother intermodal effects beyond the ones already described. These effects are the indirect effects of HSR
on passengers who continue to use their original transport mode.
Indirect effects are the impact of HSR on secondary markets, whose products are complements toor substitutes for the primary market. For simplicity’s sake, we are focusing on the alternative modes oftransport affected by the introduction of HSR. Are users of the alternative modes better off with HSR?
What about the producers? It is important to distinguish here between transfers and real resourcechanges. We have already seen the direct benefits that society gains from the introduction of HSR, butusers who remain attached to their former modes of transport may be affected positively or negatively
depending whether there are distortions on these modes of transport. The same is applicable to othereconomic agents.
The critical issue is whether price is higher or lower than marginal social cost in the alternativemode of transport. When the price is below the marginal cost in the original transport mode, thediversion of traffic to the new transport mode benefits society.5 This could happen because suboptimalcongestion, or pollution, is reduced. However, the opposite might occur, and the indirect effect could be
negative when the price is above the marginal cost, for example, if the reduction of demand in theoriginal transport mode forces the operators to reduce the level of service, thereby increasing thegeneralized cost of travel.
The key point is whether the original transport mode was optimally priced. Although it has beenargued that the reduction of road and airport congestion is a positive effect of HSR, this is only the caseif there is a lack of optimal pricing. When road and airport congestion charges internalise the external
marginal costs, there are no indirect benefits from the change in modal split. This can be viewed fromanother perspective. The justification of HSR investment based on indirect intermodal effects should befirst compared with a “do something” approach, consisting of the introduction of optimal pricing (userand polluter-pays principles).
It should also be mentioned that, given for example the impossibility of road pricing, a second-bestcase for HSR investment, based on indirect intermodal effects, requires significant effects of diverted
traffic on the pre-existing traffic conditions in the corridor. This means the combination of significant
distortion, high demand volume in the corridor and sufficiently high cross-elasticity of demand in thealternative mode with respect to the change in the generalised cost.
The assumption that the price is equal to the social marginal cost means that the loss of traffic byconventional modes of transport does not affect the utility of those who continue to use these modes oftransport, nor the welfare of producers or workers in these modes. This would mean that operators are
indifferent to a 50 per cent loss in patronage, or workers to losing their jobs, because in both cases they
are receiving the exact amount of their opportunity costs. There are many reasons to abandon thisassumption, one of which is the existence of unemployment, but we will concentrate here on how the
reduction of demand in air and bus transport affects user’s utility when the operators respond to lower
demand by reducing the service level.
Figures 1 to 10 and Tables 1 to 4 (see Annex) show how the introduction of HSR in some corridors
reduced demand for airlines and bus operators and how the airline industry responded by adjusting the
supply to the external shock in demand. There is a remarkable difference between the effects of the
reduction of service in both modes of transport. Bus operators cannot change their basic regulated
timetables because they operate under a concession contract. Although they cut the level of service when
demand diminishes, the reduction in supply does not affect frequencies since the suppressed services
G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 20099

leave at the same time as approved in the basic regulated timetable. However, it can be argued that
although users are barely affected by the short-term adjustment of bus operators, financial difficulties
will emerge later in contract renegotiations or when concessions expire. This means that users and/or
taxpayers (or workers) will have to pay for the adjustment in the medium-term.6
Airlines operate in open competition so the short-term adjustment to the external shock in demand
produced by the introduction of HSR services is a reduction in the number of operations. This affects
frequencies, firstly because the reduction in demand is substantially higher; secondly, because airlines
are not subject to public service obligations and so the adjustment is legally feasible; and thirdly,
because of the nature of flight operations (slots required for take-off and landing), frequencies arenecessarily affected when services are cut. The reduction in the number of flights per hour increases
total travel time when passengers arrive randomly, or decreases utility when they choose their flight inadvance within a less attractive timetable.
Finally, it should be stressed that intermodal competition is based on the generalized price of travel.
Modal choice may be affected by the competitive advantage of each mode of transport, but thecomparative advantage can reflect two completely different facts in this case. It may, for example,
reflect a technological advantage with respect to the trip length, but it may also be explained by the
charging policy in use. The impact on market share in medium distance-corridors may be substantial
depending on whether the government charges variable costs or aims for full cost recovery, or
something in between, depending on the severity of budget constraints.7
The final equilibrium in medium-distance (or even in short-distance) corridors will not only be theresult of the free interaction of supply and demand. Governments will have a strong influence on the
final modal split because the construction of public infrastructure is critical in transport, and particularlyin the case of HSR. Once the HSR infrastructure is built the short-run marginal cost is considerably
lower than the average cost (see Campos and de Rus, 2009, Campos et al., 2009) and the crucial
question is whether society is willing to pay the total costs (including capacity) of a new mode oftransport in the light of the actual travelling conditions in a particular corridor and the alternatives
available for improving the present situation.

4. FUNDING OF TRANSPORT INFRASTRUCTURE AND
ITS EFFECTS ON PROJECT SELECTION

The construction of a high-speed rail network is an expensive task. It is an investment that has thefollowing characteristics: it is large-scale, irreversible and costly. The decision to invest public funds inthe construction of HSR lines is subject to cost, and especially, demand uncertainty. The irreversible
nature of the decision and the profound impact on equilibrium in the corridor where the new project is tobe built makes the economic appraisal of the project quite relevant. It is therefore judicious to examine
how institutional design affects the final choice in the allocation of public money in interurban corridors.
National and supranational governments are supporting the implementation of this new railtransport technology with public funds. To understand the impact of this public support on theinvestment decision, it is useful to distinguish two levels in the process of funding major infrastructure
projects. The first relates to the institutional design, in which supranational and national governments (or10

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

national and regional governments) agree on the projects to be financed. The second is related to theselection of contracts for the construction and operation of the infrastructure. This level includes therelationship between the national (or regional) government benefitting from the project and theoperator(s) responsible for the construction and operation of the project.8
The co-financing system in the EU is the so-called “funding-gap” method consisting of a type ofcost-plus financing mechanism in which the difference between the investment costs and the discounted
revenues (net of operating costs) of the project are partially covered by the supranational organisation.
The European Commission finances a percentage (the co-funding rate) of this financial gap. The
incentive embedded in this mechanism is perverse, since the subsidy increases with total investment
costs and decreases with net revenues. This financing mechanism penalizes the internalization of
externalities and congestion, leads to excessive demand and biases the capacity size and the choice oftechnology.
Let us suppose that a country facing a problem of capacity in its transport network is considering
mutually exclusive projects, including the construction of a new HSR line that can apply for financial
support from a supranational agency. The country is governed by a politician, who must decide upon themain characteristics of the project (let us say HSR or upgraded conventional train), make a cost-benefit
analysis and then present these elements to the supranational planner in order to obtain the funds forconstruction of the infrastructure.
The effects of the present system of co-financing in the EU, or any other system in which a national
government pays for the infrastructure in the national budget and the regional government decides which
type of project is to be financed, can be modeled as follows (de Rus and Socorro, 2009). Assume that
there are only two periods. During the first period, the new rail infrastructure is constructed. During thesecond period, the citizens of the country use it. The real construction costs are paid by the national
government. We know that actual costs do not necessarily coincide with the minimum investment cost.
To minimize construction costs requires an effort on the part of the politician, which has a cost for him.
It is not uncommon for national governments to be better informed than the supranational agency
about the transport problem and the set of alternatives available and therefore about the minimum
investment cost required to solve the problem. For this reason, we assume that the supranational planner
cannot observe (or verify) either the minimum investment cost, or the effort exerted by the politician inorder to be efficient. Moreover, the national government has to decide on the price to be charged for theuse of the new infrastructure and consequently the number of users. There are also operating andmaintenance costs, which are privately known, and in many cases there are different technologies and/or
capacity sizes with significant cost differences.9
Once we abandon the idea of a benevolent supranational planner with perfect information andassume that the utility function of the politician depends on his own private income (only obtained if thepolitician is governing the country), we can explain more fully some of the evidence concerning thenational government’s decisions on expensive infrastructure.10 The higher the welfare of voters in thesecond period, the higher the probability of re-election. The welfare of voters in the second period is thesum of their consumer surplus and the value of social expenditures.
The fixed costs/total cost ratio in HSR projects can be 50 per cent or higher (Campos et al., 2009),
so these projects are always candidates for supranational funding. In a world of perfect information, thesupranational agency would maximize social welfare by forcing the national government to exert the
maximum level of effort, thereby minimizing project costs and introducing marginal social cost pricing.
In the real world, efforts and marginal costs are not observable and the behaviour of the national
government will respond to the incentives of the financing mechanism.
G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200911

With the present funding gap mechanism (as with any other cost-plus financing system), it is costly
to be efficient. Governments have no incentive to minimize investment costs or to introduce optimal
pricing. There is a bias in favour of expensive, latest technology mega-projects and pricing will departfrom user-pays or polluter-pays principles, since the higher the price for the use of the new national
infrastructure, the lower the consumer surplus of voters will be, and the lower the probability of reelection. Consequently, the politician will choose maximum number of users and will not charge for theexternal costs.
The evidence supports these conclusions. It is remarkable that member countries have promoted theconstruction of some HSR lines when the demand was too low to pass a strict cost-benefit analysis as
well as other transport infrastructure such as roads or ports. An ex post evaluation of a sample ofprojects co-financed by the Cohesion Fund in the period 1993-2002 concludes that national governments
have been focusing primarily on timely commitment of the available funding, paying less attention to
the technical content and economic priority of projects (ECORYS Transport, 2005). The evaluations
generally fail to assess the quantitative contribution of the project to the declared objectives. Problem
descriptions and analyses are sometimes lacking.
Moreover, it was generally impossible to determine whether projects were technically sound, andthis deficiency led to problems such as improper designs; technical changes after the project wasapproved but before construction was started; late changes to design/tender dossiers; late beginning of
implementation; cost overruns due to additional activities for the contractor, who was then in a good
position to claim additional costs; longer implementation periods than foreseen; and too many requests
for extension of the implementation period. The document concludes that “the evaluators have foundonly pragmatic criteria for the co-financing rate. In addition some basic dilemmas exist between generalpolicy objectives and the rules applied for calculation of the co-financing rate. In particular the polluterpays principle is only partially adopted since increasing user charges is discouraged by the present
system of determining the co-financing rate” (ECORYS Transport, 2005).
These disappointing results are not completely unexpected. As we have already discussed, national
governments are in general better informed than supranational planners about the costs and benefits of
the infrastructure projects to be constructed in their own regions, and they do not necessarily share thesame objectives. Governments may have incentives to manipulate project evaluation in order to obtain
more funds from the supranational planner. In a context of asymmetric information and different
objectives, the relationship between national governments and supranational planners cannot bemodelled in a conventional cost-benefit analysis framework.
The existence of information asymmetries and conflicting interests requires a different approach inwhich incentives are explicitly accounted for. Florio (2006) proposes to move away from the current
low-powered incentive EU co-financing mechanism, essentially a partial reimbursement of investment
cost scheme, towards a more incentive-based system.
As argued in de Rus and Socorro (2009), a fixed-price financing mechanism may provide thenecessary incentives to reduce costs and charge the socially optimal price. Moreover, with the fundinggap method, cost-benefit analysis is simply a bureaucratic requirement to enable national governments
to obtain supranational funds. However, with the fixed-price financing mechanism, cost-benefit analysis
is a very useful tool for governments to allocate the supranational funds in the most efficient way.
The fixed-price mechanism, in this context, is an ex ante fixed quantity of external funding
unrelated to costs and revenue. The idea of the fixed-quantity financing mechanism is to make national
governments responsible for insufficient revenues and cost inefficiencies, since they receive a fixed
12

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

amount of funding and are the residual claimants for effort. The incentive to introduce optimal pricing is
now high as the costs of inefficient pricing are also suffered by the politician.
It is worth stressing that by giving national governments an ex ante fixed amount of funds, theEuropean Commission loses its influence on the selection of projects. This is not the position of theEuropean Commission, which establishes infrastructure investment priorities for the member countries.
An intermediate solution is to replace the funding-gap method with an alternative financing scheme
based on ex ante fixed-quantity funding linked to generic objectives such as investing in “accessibility”
or “minimizing the total social cost of transport” in selected corridors, a mechanism that should be
dissociated in any case from costs and revenues and the selection of any specific technology. The risk ofbuilding socially unprofitable HSR lines would be dissociated from the co-financing mechanism, since
the selection of the most expensive (and perhaps inappropriate) project will now have a completely
different opportunity cost for national governments.

5. CONCLUSIONS

The future of interurban transport will be determined by the interaction of consumer preferences,
technological developments and the availability of resources to meet mobility needs. Competition
between firms and modes of transport, subject to the minimum regulation required both to internalize
externalities and guarantee a basic level of accessibility, will shape transport networks in the years tocome. However, public intervention is not confined to price regulation or equity issues in transport.
Public infrastructure construction can exert a remarkable influence on the future form of interurban
transport corridors.
The high-speed rail investment decisions taken and the subsequent infrastructure pricing policies
set by the public sector have a profound impact on the allocation of resources in the transport sector andthe rest of the economy. It seems obvious that high-speed rail infrastructure is an appropriate option forsome corridors but a very expensive one in low-traffic areas where the alternative modes of transport
can satisfy demand at much lower cost.
The challenge is to design an institutional framework that helps to find the best options for society,beyond the special interests of industry groups and politicians. To reinforce the use of cost-benefit
analysis as a requirement for approving new infrastructure is clearly insufficient. Because ofasymmetries of information and conflicting interests, there is a need for a new incentive mechanism thatwill help overcome the current situation in which the member country-supranational government
relationship (or that of regional and national governments) creates a bias in favour of the most expensive
and modern technology over more efficient and less expensive solutions, new construction overmaintenance and upgrading, and free access over the introduction of efficient pricing based on thepolluter-pays and user-pays principle.

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200913

Jan-99
Mar-99May-99Jul-99
Sep-99
Nov-99
Jan-00Mar-00
May-00Jul-00
Sep-00
Nov-00
Jan-01Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02Mar-02
May-02
Jul-02
Sep-02
Nov-02Jan-03Mar-03May-03
Jul-03
Sep-03
Nov-03Jan-04Mar-04
May-04
Jul-04
Sep-04
Nov-04Jan-05Mar-05
May-05Jul-05
Sep-05
Nov-05Jan-06Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08Mar-08May-08
Jul-08
Sep-08Nov-08Jan-09Mar-09
May-09Jul-09Sep-09Jan-99Mar-99May-99Jul-99
Sep-99
Nov-99
Jan-00Mar-00
May-00Jul-00
Sep-00
Nov-00
Jan-01Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02Mar-02
May-02
Jul-02
Sep-02
Nov-02Jan-03Mar-03May-03
Jul-03
Sep-03
Nov-03Jan-04Mar-04
May-04
Jul-04
Sep-04
Nov-04Jan-05Mar-05
May-05Jul-05
Sep-05
Nov-05Jan-06Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08Mar-08May-08
Jul-08
Sep-08Nov-08Jan-09Mar-09
May-09Jul-09Sep-09ANNEX

Figure 1. Madrid-Barcelona air passenger-trips per month

500.000

14
Post-HSR

450.000

400.000

350.000

300.000

250.000

200.000

150.000

100.000

50.0000

Source: built from data in www.aena.es

Figure 2. Madrid-Barcelona commercial flights per month

4.500

Post-HSR

4.000

3.500

3.000

2.500

2.000

1.500

1.000

500

0

Source: built from data in www.aena.es

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

Table 1. Madrid-Barcelona (passengers-trips)
Variable

Coefficient

Std. Error

t-Statistic

T

1064

65**

16.26046

D1

-2914

9522

-0.306032

D2

36026

9520**

3.784228

D3

64210

9543**

6.728295

D4

38762

9540**

4.063172

D5

66535

9537**

6.976728

D6

57925

9534**

6.075548

D7

19253

9532*

2.019896

D8-100908

9530**-10.58831

D9

20683

9529*

2.170561

D10

68821

9742**

7.064316

D11

56634

9741**

5.813673

HSR-1503686914**-21.74971

C

2609657932**

32.90185

T: month; D1-D11: monthly dummies; HSR: dummy for High Speed Rail.
R-squared: 0.901392; Adjusted R-squared: 0.890245; Durbin-Watson stat: 1.032179;*,** significant at the 5 or 1 per cent level.

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200915

Table 2. Madrid-Barcelona (commercial flights)
Variable

Coefficient

Std. Error

t-StatisticT

8

0.55**

15.06314

D1

177

80*

2.212122

D2

244

80**

3.042595

D3

526

80**

6.557876

D4

174

80*

2.173615

D5

375

80**

4.673040

D6

263

80**

3.287075

D7

106

80

1.321722

D8

-917

80**

-11.43899

D9

11

80

0.131378

D10

406

82**

4.954149

D11

412

82**

5.027874

HSR

-1037

58**

-17.84494

C

2550

67**

38.23676

T: month; D1-D11: monthly dummies; HSR: dummy for High Speed Rail.
R-squared: 0.880377; Adjusted R-squared: 0.866855; Durbin-Watson stat: 1.100381;*,** significant at the 5 or 1 per cent level.

16

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

Jan-99
Mar-99May-99Jul-99
Sep-99
Nov-99
Jan-00Mar-00
May-00Jul-00
Sep-00
Nov-00
Jan-01Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02Mar-02
May-02
Jul-02
Sep-02
Nov-02Jan-03Mar-03May-03
Jul-03
Sep-03
Nov-03Jan-04Mar-04
May-04
Jul-04
Sep-04
Nov-04Jan-05Mar-05
May-05Jul-05
Sep-05
Nov-05Jan-06Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08Mar-08May-08
Jul-08
Sep-08Nov-08Jan-09Mar-09
May-09Jul-09Sep-09Jan-99Mar-99May-99Jul-99
Sep-99
Nov-99
Jan-00Mar-00
May-00Jul-00
Sep-00
Nov-00
Jan-01Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02Mar-02
May-02
Jul-02
Sep-02
Nov-02Jan-03Mar-03May-03
Jul-03
Sep-03
Nov-03Jan-04Mar-04
May-04
Jul-04
Sep-04
Nov-04Jan-05Mar-05
May-05Jul-05
Sep-05
Nov-05Jan-06Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08Mar-08May-08
Jul-08
Sep-08Nov-08Jan-09Mar-09
May-09Jul-09Sep-09Figure 3. Madrid-Zaragoza air passenger-trips per month12.000Post-HSR

10.000

8.000

6.000

4.000

2.000

0

Source: built from data in www.aena.es

Figure 4. Madrid-Zaragoza commercial flights per month350

Post-HSR

300

250

200

150

100

50

0

Source: built from data in www.aena.es

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200917

Table 3. Madrid-Zaragoza (passenger-trips)
Variable

Coefficient

Std. Error

t-Statistic

T

-1

5

-0.232599

D1

-87

475

-0.183369

D2

482

475

1.015930

D3

970

475*

2.043228

D4

139

475

0.293170

D5

872

475

1.837054

D6

928

475

1.954525

D7

129

475

0.270871

D8

-1049

475*

-2.206355

D9

644

476

1.354009

D10

1269

486*

2.612176

D11

972

486*

2.002266

HSR

-5973

381**

-15.67043

C

7706

388**

19.86720

T: month; D1-D11: monthly dummies; HSR: dummy for High Speed Rail.
R-squared: 0.899041; Adjusted R-squared 0.887629; Durbin-Watson stat: 0.843296;*,** significant at the 5 or 1 per cent level.

18

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

Table 4. Madrid-Zaragoza (commercial flights)

Variable

Coefficient

Std. Error

t-Statistic

T

0.098

0.16

0.598539

D1

9

15

0.597563

D2

5

15

0.341518

D3

16

15

1.054459

D4

8

15

0.518867

D5

17

15

1.142293

D6

14

15

0.885964

D7

9

15

0.605989

D8

-25

15

-1.638183

D9

11

15

0.687313

D10

32

16*

2.069965

D11

24

16

1.546399

HSR

-157

12**

-12.75281

C

228

12**

18.27449

T: month; D1-D11: monthly dummies; HSR: dummy for High Speed Rail.
R-squared: 0.839659; Adjusted R-squared: 0.821534; Durbin-Watson stat: 0.626277;*,** significant at the 5 or 1 per cent level.

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200919

Figure 5. Madrid-Barcelona (scheduled bus services)
Changes in demand per month (base year: 2006)%30

Increase in
HSR price

Post HSR

Low cost airlines

Increase in
Reduction in
HSR frecuency HSR price20

10

Apr-09Mar-09

Jan-09Feb-09Dec-08

Oct-08Nov-08

Sep-08

Jul-08Aug-08Jun-08Apr-08May-08

Feb-08Mar-08Jan-08Dec-07

Nov-07

Oct-07

Sep-07Aug-07

Jul-07

Jun-07

May-07

Apr-07Mar-07

Jan-07-10

Feb-07

0

-20

-30

Source: built from data provided by FENEBUS.

Figure 6. Madrid-Zaragoza (scheduled bus services)
Changes in demand per month (base year: 2006)%

HSR increases
frecuency HSR price30

Increase in
HSR price

Reduction in
Increase in
HSR frecuency HSR pricereductions
20

Increase in
HSR frecuency

Expo

10

Apr-09Mar-09Feb-09

Jan-09Dec-08Nov-08

Oct-08

Sep-08Aug-08

Jul-08Jun-08May-08Apr-08Mar-08

Feb-08Jan-08Dec-07

Nov-07

Oct-07

Sep-07Aug-07

Jul-07

Jun-07

Apr-07

May-07

Feb-07Mar-07-10

Jan-07

0

-20

-30

Source: built from data provided by FENEBUS.

20

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

Figure 7. Zaragoza-Barcelona (scheduled bus services)
Changes in demand per month (base year: 2006)%
30

Post HSR

Increase in
HSR price

Increase in
Reduction in
HSR frecuency HSR price20

10

Apr-09Feb-09Mar-09

Jan-09Dec-08Nov-08

Oct-08

Sep-08Aug-08

Jul-08Jun-08Apr-08May-08Mar-08Jan-08

Feb-08Dec-07

Oct-07

Nov-07

Sep-07

Jul-07Aug-07

Jun-07

Apr-07

May-07

Feb-07Mar-07-10

Jan-07

0

-20

-30

Source: built from data provided by FENEBUS.

Figure 8. Madrid-León (scheduled bus services)
Changes in demand per month (base year: 2006)%
30

Post ALVIA

Increase in
HSR frecuency

20

Reduction in
HSR price10

Apr-09Feb-09Mar-09

Jan-09Dec-08Nov-08

Oct-08

Sep-08Aug-08

Jul-08Jun-08May-08Apr-08Mar-08

Feb-08Jan-08Dec-07

Oct-07

Nov-07

Sep-07

Jul-07Aug-07

Jun-07

Apr-07

May-07

Feb-07Mar-07-10

Jan-07

0

-20

-30

Source: built from data provided by FENEBUS.

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200921

Figure 9. Madrid-Valladolid (scheduled bus services)
Changes in demand per month (base year: 2006)%
30

Post HSR

20

10Jan-09Feb-09Mar-09Apr-09

Jan-09Feb-09Mar-09Apr-09Dec-08Dec-08

Oct-08Nov-08

Sep-08Aug-08

Jul-08Jun-08May-08Apr-08Mar-08Jan-08

Feb-08Dec-07

Oct-07

Nov-07

Sep-07

Jul-07Aug-07

Jun-07

Apr-07

May-07

Feb-07Mar-07-10

Jan-07

0

-20

-30

Source: built from data provided by FENEBUS.

Figure 10. Lleida-Barcelona (scheduled bus services)
Changes in demand per month (base year: 2006)
Post HSR%
10

Oct-08Nov-08

Sep-08Aug-08

Jul-08Jun-08May-08Apr-08

Feb-08Mar-08Jan-08Dec-07

Nov-07

Oct-07

Sep-07Aug-07

Jul-07

Jun-07

Apr-07

May-07Mar-07

Feb-07-10

Jan-07

0

-20

-30
-40
-50
-60
-70
-80

Source: built from data provided by FENEBUS.

22

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

REFERENCES
Adler, N., C. Nash and E. Pels (2007), “Infrastructure pricing: The case of airline and high-speed rail
competition”, Paper presented at the 11th World Conference on Transport Research, Berkeley.
Bajari, P. and S. Tadelis (2001), “Incentives versus transaction costs: a theory of procurement
contracts”, RAND Journal of Economics, 32 (3), pp. 387-407.
Becker, G.S. (1983), “A theory of competition among pressure groups for political influence”, The
Quarterly Journal of Economics, 98 (3), pp. 371-400.
Campos, J. and P. Gagnepain (2009), “Measuring the intermodal effects of high-speed rail”, in: G. deRus (ed.), Economic Analysis of High-Speed Rail in Europe, BBVA Foundation.
Campos, J. and G. de Rus (2009), “Some stylized facts about high-speed rail: A review of HSR
experiences around the world”, Transport Policy, 16 (1), pp. 19-28.
Campos, J., G. de Rus and I. Barron (2009), “The cost of building and operating a new high-speed railline”, in: G. de Rus (ed.), Economic Analysis of High-Speed Rail in Europe, BBVA Foundation.
de Rus, G. (2008), “The Economic effects of high-speed rail investment”, International Transport
Forum, OCDE, Paris. Discussion Paper No. 2008-16.
de Rus, G. and C.A. Nash (2007), “In what circumstances is investment in high-speed rail worthwhile?”,Working Paper 590, Institute for Transport Studies, University of Leeds.
de Rus, G. and P. Socorro (2009), “Infrastructure investment and incentives with supranational
funding,” Paper presented at the VIIIth Milan European Economy Workshop, University of
Milan, in the framework of the EIBURS project.
Dixit, A.K. and R.S. Pindyck (1994), Investment under uncertainty, Princeton University Press.
Downs, A. (1957), An economic analysis of democracy, New York: Harper& Row.
ECORYS Transport (2005), “Ex post evaluation of a sample of projects co-financed by the Cohesion
Fund (1993-2002)”, Synthesis Report for the European Commission, DG Regional Policy.
European Commission (2009), “The future of transport”, Focus Groups’ Report, Brussels.
Florio, M. (2006), “Cost-benefit analysis and incentives in infrastructure planning and evaluation: aresearch agenda for the EU cohesion policy”, 5th Milan European Economy Workshop,
26-27 May 2006.
Flyvbjerg, B., N. Bruzelius and W. Rothengatter (2003), Megaprojects and risk: An anatomy ofambition, Cambridge University Press.
G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200923

Guasch, J.L. (2004), Granting and renegotiating infrastructure concessions: Doing it right, Washington,
D.C.: WBI Development Studies, The World Bank.
Laffont, J.J. and J. Tirole (1993), A theory of incentives in procurement and regulation, MIT Press,
Cambridge, MA.
Mackie, P. and J. Preston (1996), The local bus market: A case study of regulatory change, Avebury.
Morrison, S.A. and C. Winston (1995), The evolution of the airline industry, The Brookings Institution,
Washington, D.C.
Morrison, S.A. and C. Winston (2005), “What’s wrong with the airline industry? Diagnosis and possiblecures”, Hearing before the Subcommittee on Aviation, Committee on Transportation andInfrastructure, United States House of Representatives.
Nash, C.A. (1993), “British bus deregulation”, The Economic Journal, 103 (419), pp.1042-1049.
Nash, C.A. (2003), “Marginal cost and other pricing principles for user charging in transport: acomment”, Transport Policy, 10 (2) pp. 345-348.
Niskanen, W.A. (1971), Bureaucracy and representative government, Chicago: Aldine-Atherton,
Aldershot.
Olsen, T. and P. Osmundsen (2005), “Sharing of endogenous risk in construction”, Journal of Economic
Behavior & Organization, 58 (4), pp. 511-526.
Preston, J. (2004), The deregulation and privatisation of public transport in Britain: twenty years on,
Transportation Research Foundation.
Robinson, J.A. and R. Torvik (2005), “White elephants”, Journal of Public Economics, 89 (2-3),
pp. 197-210.
Rothengatter, W. (2003), “How good is first best? Marginal cost and other pricing principles for user
charging in transport”, Transport Policy, 10 (2), pp. 121-130.
Sobel, R. S. (1998), “The political costs of tax increases and expenditure reductions: Evidence fromstate legislative turnover”, Public Choice, 96 (1-2), pp. 61-80.
Steer Davies Gleave (2004), High-speed rail: international comparisons. Report prepared for UK
Commission of Integrated Transport, London.
Vreeker, R. and P. Nijkamp P. (2005), “Multicriteria evaluation of transport policies”, in: K.J. Button
and D.A. Hensher (eds.), Handbook of transport strategy, policy, and institutions, Elsevier,Oxford.

24

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 2009

NOTES

1.

Transport policy priorities have changed over the past decades. In the 1960s, the emphasis was on
network and capacity expansion; from the 1970s onward, efficiency was more important than new
construction; from the 1980s onward, the negative externalities of transport emerged strongly; inthe 1990s, the focus was on the potential of new technologies for network improvement (Vreeker
and Nijkamp, 2005).

2.

It is not unusual for the construction of HSR in low demand corridors to be defended on the basisof optimistic traffic projections.

3.

With a NPV>0 and in the case of “accept-reject”.

4.

An explanation of the time (and quality) advantage of HSR over air transport is contingent on
differences in security procedures, and it should not be taken for granted that these differences
will remain as they are.

5.

We assume that the price is equal to, or greater than, the marginal cost in the new transport mode.

6.

This argument can be extended to conventional rail services negatively affected by the
introduction of HSR.

7.

We shall not discuss here which type of pricing criteria should be followed. For a discussion of
the justification of short-run vs long-run marginal cost pricing in transport, see Rothengatter(2003) and Nash (2003). The effects on HSR prices when infrastructure investment costs areincluded in prices can be seen in de Rus (2008).

8.

This second level has been widely analysed in the economic literature (Laffont and Tirole, 1993;
Bajari and Tadelis, 2001; Guasch, 2004; Olsen and Osmundsen, 2005).

9.

Cost overruns are common in large infrastructure projects and it has been shown that the deviation
is not only explained by unforeseen events (Flyvbjerg et al., 2003).

10.

The implementation of the user-pays and the polluter-pays principles and the reduction of public
expenditure have significant political costs (Sobel, 1998). Downs (1957), Niskanen (1971) and
Becker (1983), have often assumed that legislators attempt to maximize electoral support. Even if
re-election may not be the primary factor motivating their legislative behavior, it is still true thatlegislators react in predictable ways to the electoral costs and benefits of their choices. Thus,
legislators will favour actions that increase the probability of their being re-elected over decisions
that lower it (Sobel, 1998; Robinson and Torvik, 2005).

G. De Rus – Discussion Paper 2009-18 - © OECD/ITF, 200925