Privatized Toll Roads: Extracting Monopoly Rents
The latest on the privatized Skyway toll road is provided by InkyAtari who insists that this story is “Proof that the private sector does things better!”:
Skyway doing well under concession – traffic up 18%, revenues up 35% … Toll collectors were paid over $20/hour by the City versus $12/hr now.
In other words, profits are up for two reasons: (a) the owners are extracting consumer surplus from motorists; and (b) labor costs are down not because the owners have economized on the number of workers but because they have lowered their pay. Not exactly the typical definition of efficiency.
AB readers – remind me of which of our trolls InkyAtari sounds like.
Update: I have a confession. Our favorite troll blogged on this story first and I wanted to give him a chance to post a comment here before I gave him credit. I only discovered that other blog because the link to tollroadsnews was not working. But notice Roland Patrick (aka Patrick R. Sullivan) missed the real story only noting the following:
Interest expense on the $ 1.8 billion up front lease payment being well over $100 million dollars (we would surmise) they’ll need every economy they can find to make this a wise investment.
To which anyone who understands finance goes “HUH”. He is assuming a 5.5% interest rate but even long-term nominal interest rates are only 5% with real interest rates being only half of that. It is expected future cash flows that matter not current cash flows and one would expect toll revenues and profits to at least keep pace with the general price-level. So let’s see – the real interest cost on $1.8 billion is only $45 million – not $100 million.