Financing Infrastructure over Time

Abstract

This paper investigates the problem of financing infrastructure over time when the number of users also changes. The problem is confronted in many fast-growing communities that need to coordinate the timing of infrastructure and development, yet still achieve economies of scale where they exist. The temporal free-rider problem is defined, whereby the group that finances the construction at a given time is not identical with the group that uses it. The continuous recovery method, which effectively establishes a property rights framework for infrastructure, is described. Continuous recovery enables existing residents to be appropriately compensated by new residents, independent of the number of new residents who ultimately arrive. The system is illustrated and compared with practice in a case that uses a noncontinuous cost recovery system.