ABSTRACT
This chapter deals with microeconomics. Microeconomic theory and modeling have made two major contributions to understanding the future direction of infrastructure investment. The first is central to transportation economics and concerns the efficient pricing and use of infrastructure. The second contribution is in understanding how changes in transportation costs may alter the structure of cities and with it the need for infrastructure provision. The move from indirect gasoline taxes to direct tolling not only allows highway authorities to manage their existing infrastructure efficiently but also provides a mechanism for funding expansion. The gas tax is an indirect pricing mechanism where there is limited market signaling and no market feedback for poor service. Canada and some other countries have moved their air traffic control systems from a government operation to quasi-governmental companies. Economic theory suggests that at some hub airports where a single carrier dominates, the costs of congestion are “internalized” by the airline.
