Microeconomics for Infrastructure Rehabilitation Dina A. SAAD 1 and Tarek HEGAZY 2 1 PhD Candidate, Department of Civil & Environmental Engineering, University of Waterloo, Waterloo, ON, Canada, Email: dina.a.saad@uwaterloo.ca 2 Professor, Corresponding Author, Department of Civil & Environmental Engineering, University of Waterloo, Waterloo, ON, Canada, Email: tarek@uwaterloo.ca ABSTRACT Infrastructure rehabilitation has been a tremendous challenge for municipalities and public agencies. While several methods exist to allocate a limited rehabilitation budget among a large number of competing assets, no efforts provided solid economic reasoning or justification behind fund-allocation decisions. Thus, this paper introduces a new perspective in infrastructure rehabilitation, inspired by the broad array of concepts available in the science of Microeconomics. The paper discusses four microeconomic theories and examines their applicability in the infrastructure domain: (1) equilibrium between demand and supply to balance economic decisions; (2) utility maximization through equitable return on spending; (3) indifference curves for sensitivity analysis; and (4) loss-aversion behaviour of decision makers. Initial results of a real case study of 1300 pavement sections proved the applicability of basic microeconomic concepts in the infrastructure rehabilitation domain. INTRODUCTION One of the main tasks related to infrastructure rehabilitation is to efficiently distribute a limited budget among a large number of assets that are in an urgent need for rehabilitation. Most of the existing procedures endorsed by municipalities and/or proposed in the literature to allocate rehabilitation funds follow one of three methodologies: (1) assign money to the worst assets until the budget is exhausted, i.e., use a simple ranking approach (Shah et al. 2013); (2) use a form of benefit-cost analysis (e.g., Szimba and Rothengatter 2012); or (3) to a limited extent use optimization methods (Halfawy et al. 2006). None of these methods, however, provide economic justification or explanation behind the decisions made. Moreover, none of them address the different preferences/behaviours of the various stakeholders involved in the infrastructure problem. In an effort to address these issues, this paper integrates the two worlds of microeconomics and infrastructure asset management to provide economic justification behind rehabilitation decisions and make them more reflective of the real preferences of all stakeholders. The basic premise of this paper is the analogy between the consumer decision situation of spending a limited income on different expenditure categories and the decision situation of spending a limited budget on a large number of infrastructure rehabilitation needs. The former situation has been studied extensively in the microeconomics domain over the past 200 years to help understand how individuals behave under different circumstances, the variables that affect the individuals’ decision making process, etc. As such, this paper 1279 Construction Research Congress 2014 ©ASCE 2014