Viability of new road infrastructure with heterogeneous users

► We study heterogeneity in value of time and route choice to assess the viability of a new road. ► Their construction is found to produce important welfare gains. ► The private regime attains close to first best welfare level but has distributional problems. ► The semi-private regime means a free congestible highway parallel to a tolled free-flowing highway. ► Empirical analysis shows that off-peak tolls must be reduced to improve viability for toll operator. This paper explores the importance of heterogeneity in value of time and route choice when assessing the viability of new road infrastructure to alleviate congestion problems. The model incorporates strategic interaction between road operators in a cost-benefit framework and several competitive regimes are considered. It is then employed to establish the financial and socio-economic viability of a congestion pricing demonstration entering Madrid city centre, where road users have to choose between a free but highly congested road and a priced free-flowing road (semi-private regime). A logit estimation is undertaken with information from a questionnaire among road users in the Eastern Madrid area to obtain users’ value of time and of congestion. The tolls obtained generate a traffic reallocation towards the new roadway such that revenues suffice to render the infrastructure socio-economically viable. The private and the low toll regimes generate similar welfare gains that are close to the first best. Yet the former supposes large losses to users. The low toll and the semi-private regimes do not raise such distributional concerns. However, the low toll regime requires a sufficiently high traffic growth rate to make it financially viable; this does not happen for the other competitive regimes.