How efficient and productive are road toll companies? Evidence from Norway James Odeck a,b,c a Department of Economics, Molde University College, P.O. Box 2110, 6402 Molde, Norway b Department of Transport Engineering, The Norwegian University of Science and Technology, N-7491 Trondheim, Norway c Public Roads Administration, P.O. Box 8142 dep, 0033 Oslo, Norway article info Available online 24 June 2008 Keywords: Toll companies Efficiency and productivity DEA Malmquist index abstract This article evaluates the technical efficiency of toll companies, i.e., how toll companies perform relative to each other, their productivity, and whether toll companies improve their efficiency from one year to the next relative to the best performers. The rationale for this study is that Norwegian road toll companies have been criticized for not being as efficient as they should; it has been claimed that some have very large operational costs compared to their peers and hence are inefficient. The framework for analysis is Data Envelopment Analysis and its subsequent Malmquist Productivity indices. The data are from the accounting period of 2001–2004 and contain information on 18 companies. The results show that: (1) there is a potential for efficiency increases of about 14%, (2) there are economies of scale in the industry in that larger companies (as measured by number of lanes served) tend to be more efficient compared to smaller companies, and (3) there has been a productivity increase in the sector of about 1%, and this progress is due more to companies employing a newer and more effective method for collecting funds and less to improving efficiency from one year to the next. Finally, these findings suggest that the Norwegian road authorities should consider reorganizing the toll sector such that the inherent economies of scale are utilized. & 2008 Elsevier Ltd. All rights reserved. 1. Introduction In the last three decades, Norway has experienced a tremen- dous growth in the number of toll companies established to collect tolls for funding road infrastructure projects. Reasons for this growth are that, as in many European countries and the US, government funding is constrained and, therefore, road autho- rities seek alternatives measures to realize the much-needed infrastructure. One of the main reasons for constrained govern- ment funding in Norway despite large oil revenues is the need to control the level of activity in the economy. Using public funds expansively in up-turns may overheat the economy and lead to an undesired level of inflation. Unlike the rest of Europe and the US, however, Norwegian toll companies are non-profit organizations established by local authorities and interest groups purely to collect funds for financing road infrastructure; these funds help finance the infrastructure earlier than would be possible with government funds alone. The Norwegian model for financing road infrastruc- ture by tolling has become popular among Norwegian policy makers, and new projects are constantly being proposed and implemented. In recent years, however, the performance of Norwegian toll companies has been the subject of debate and has revolved around the level of operational costs. One view maintains that toll companies are not as efficient as they should be in providing their services, i.e., they fail to keep their operation costs as low as possible. Underlying this claim is the fact that the lower the operational costs, the earlier the tolls can be removed, thus giving road users a higher utility for the projects. Recent studies by Welde and Amdal (2006) and Erik Amdal et al. (2007) have shown that the operational cost per vehicle of toll companies varied between 6% and 20%, indicating that there may be inefficiency in the sector worth addressing. Further, toll companies serving cordon tolls were found to have lower operational costs, indicating that there may be economies of scale in the sector. Arguments have therefore been put forward that the physical consolidation of small companies would increase efficiency, thus utilizing available resources better by, for example, reducing the operational costs for companies. In addition to the above-mentioned studies, the Auditor General (2000) examined three toll companies and reported that the organizational frameworks of the toll companies were not as optimal as they should be and that other organizational forms ARTICLE IN PRESS Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/tranpol Transport Policy 0967-070X/$ - see front matter & 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.tranpol.2008.05.002 E-mail address: james.odeck@vegvesen.no Transport Policy 15 (2008) 232– 241