If protection is in the form of a quota, on the other hand, trade liberalization will increase the optimal infrastructure investment. He shows that in a two-country model with spillovers between countries, the cooperative equilibrium may involve either more or less investment than the noncooperative equilibrium, depending on the pattern of trade between the two countries and the degree of substitutability between investments in the two countries. For a relatively small country, for example, there would be more underinvestment in railroad and highway infrastructure to neighboring countries than there would be in airport and harbor infrastructure. The first type of investment is specific to certain markets and is likely to affect the relative price of goods in those markets. The second type of investment, on the other hand, will send goods to world markets generally, where prices are likely to be relatively unaffected by the investments.
Bond also examines the desirability of linking regional trade and infrastructure agreements.
The prediction generated by his model is that in the absence of cooperative agreements between countries, there will be underinvestment in those forms of transportation in which the investments will have spillover effects to other countries. Internalizing the effects of the infrastructure investment in the tariff negotiation process, in cases where countries cannot commit to future tariff rates. The full report is available in PDF format.