Transnational Projects and Public Goods: A Comparative Study
By Jean-Jacques Laffont, David Martimort (03/03, IFM-137, En) See also Infrastructure and Financial Markets
The Inter-American Development Bank has actively promoted infrastructure reform in Latin America. The Bank has also financed private projects aimed at fostering the implementation of reforms in the power, gas, water, and transport sectors. Now, the Bank is engaged in a program whose aim is the development of transnational infrastructure projects.
Two regional Initiatives were recently proposed to promote transnational infrastructure: the Initiative for the Regional Integration of South America (IIRSA in its Spanish acronym) and the Plan Puebla Panama (PPP) for Central America and Mexico. These initiatives face significant challenges, most of which have not been properly appreciated because transnational projects yield costs and benefits in several countries and the distribution of those costs and benefits is asymmetric. These features of transnational projects raise new issues that do not appear in projects in which benefits and costs mainly affect a single country. One relevant issue is that under the condition of asymmetric distribution of costs and benefits, individual decisions made by one country do not result in optimal levels of investments in transnational projects. Lower than optimal transnational investment results from poor identification of the benefits of transnational projects, country reluctance to pay for infrastructure assets located abroad, and the lack of socially acceptable mechanisms to distribute costs and benefits among countries. Therefore, it may take a great deal of time for two countries to enter into a dialogue about a project with cost and/or benefits in both nations if they lack rules for cooperation and/or incentives to communicate with each other about the project costs and benefits.
This
article is part of a set of publications resulting from a program to analyze
specific issues arising in transnational infrastructure projects in a
well-defined conceptual framework. The paper discusses the special features that
distinguish transnational projects from usual public goods. It reviews the most
important tenets of the modern theory of public goods and shows the extent to
which this theory is useful for dealing with transnational project issues.
Particular emphasis is given to the institutional environment for transnational
projects. The paper also addresses issues related to the political economy of
transnational projects and briefly discusses property rights issues as they
relate to transnational assets.
This publication can be obtained from:
IFM
Publications
Infrastructure and Financial Markets Division
Mail Stop W-0508
Inter-American
Development Bank
1300 New York Avenue, N.W.
Washington, D.C. 20577
E-mail:
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Last updated: 05/08/07
