organizational characteristics. Some infrastructure services are considered to be a citizen’s right, and government is expected to ensure a minimum avail- ability to everybody (for example, health care) to some degree, irrespective of their capacity to pay. This leads us to the public characteristics of infrastruc- ture.
good or a service, this action does not preclude others from doing so, even simultaneously. This feature distinguishes technology from, say, a piece of capital equipment, which can only be used in one place at a time. Second, technology in many cases is a partially non-excludable good. That is, the creators or owners of technical information can experience difficulty in preventing others from making unauthorized use of it, at least in some appli- cations. Again, this attribute of technology distinguishes it from capital equip- ment, which is readily excludable. Such non-excludability of knowledge suggests that industrial research and development (R & D) may generate
‘technological spillovers’. By technological spillovers one understands that firms can obtain information created by others without paying for that infor- mation in a market transaction and also that the creators (or current owners) of the information have little effective recourse, under prevailing laws, if other firms use it.
Third, there may be network externalities, whereby benefits and costs are conferred on those not a party to the transaction (e.g. spillovers, such as those discussed above). In general, competitive markets are likely to overproduce goods imposing negative externalities and underproduce those with positive externalities. Many goods may have both positive and negative spillovers. A road, for instance, confers positive externalities to those firms whose distribu- tion system has been improved, even though they have not paid for the road.
Contrariwise, the road may generate a negative externality, for example on residents around a new road who have their views spoiled, or peace disturbed, and have not been recompensed for the cost they are bearing. The difficulty with externalities is that they arise to a greater or lesser degree in virtually all economic activities, and if every service that produced external benefits or costs had to be supplied by government, it would produce virtually everything.
Nevertheless, the network characteristic of infrastructure, which links it to many parts of the economy, means that the spillovers arising from an infra- structure project are of a much larger order of magnitude than for many other activities. Indeed, they almost define the nature of infrastructure (Threadgold, 1996).
Fourth, infrastructure gives rise to natural monopolies, when scale economies make it practicable to have only one provider (for example, of an electricity grid to a particular area). It is more cost effective to have one provider of an elec- tricity grid, rather than multiple small providers who individually cannot realize the economies of scale involved. Because of the high fixed capital costs involved, the competitive provision of the infrastructure itself is costly, often prohibitively so. Related to this characteristic, the development and delivery of many infrastructure services require the acquisition of land for transport routes or rights above or below ground to install conduits, pipes and cables. Often only government has the capacity to cede these negotiation rights. Nevertheless, the
natural monopoly characteristic need not exclude competition in the use of infrastructure, and public control over property rights does not necessarily require government to own or operate the infrastructure services.
Fifth, infrastructure usually involves very large investments. Capital costs of infrastructure are generally large relative to the running costs, and the sunk costs of establishing an infrastructure asset are substantial. This means that a high proportion of the total cost of a service has already been irrevo- cably committed before the service is made available.
Many of the items widely recognized as infrastructure – such as the distri- bution networks of public utilities and the development of road and rail systems – generally meet all five of these conditions. Other activities, still widely regarded as infrastructure, such as postal services and financial payment systems, have several features in common with utility distribution facilities: they involve networks, have significant sunk costs and are widely used, are indispensable, and have a relatively low user cost.
Together, these five characteristics traditionally have been seen as casting doubt on the viability of private-sector, competitive market provision, despite the fact that some infrastructure is privately owned and operated.
Two of the characteristics, natural monopoly and the predominance of sunk costs, simply suggest that competitive supply is unlikely to emerge. The network feature of infrastructure raises the possibility that efficient provi- sion will not be achieved unless mechanisms of central coordination are put in place. Finally, the strategic importance of the service to the economy means that governments traditionally have been unwilling to rely on supply by the competitive private sector. In the presence of externalities and public good features, the benefits of an increased supply of the good in question may be greater than what can reasonably be charged to users. Toll roads and inland waterways are the classic illustration. In theory, these could be, and in the past have been, built by private entrepreneurs charging tolls. But the charges might have to exceed the cost of the existing modes of transporta- tion, so the profitability of the venture would be threatened by the unwill- ingness of users to switch to a higher cost mode of transport. Nevertheless, the greater efficiency of the new transportation facility would provide considerable benefits to many non-users across the whole geographical area.
Public finance and public provision have thus been seen as necessary to ensure that these efficiency gains will be realized, and in most countries the outcome was that a large number of infrastructure activities were owned, managed and financed by the public sector. However, this government monopoly of infrastructure activities has come under increasing scrutiny and mounting pressure for change, resulting in the growing commercialism of infrastructure.