A simple public investment problem

PinkyTang55 · PJNet Newbie Joined: Sep 29, 2008 Posts: 1

Assume that only a narrow lane branching off the main road some five miles away can reach a large area of a sandy beach. As a result, visitors, even though they are mostly local, find it necessary to travel to the beach by car. No parking is permitted on the approach lane, but imagine that the local farmer has converted a paddy field adjacent to the beach into a car park.

A parking fee is charged which the farmer feels maximizes his profits, for he really wants to sell the field being used for car-park later on at as high a price as possible. He wants to use the proceeds to expand his farming activities. The car-parking fee is rupees 10, and 10,000 cars park annually, leaving considerable spare capacity. The only cost, which is incurred irrespective of the number of cars parked, is rupees 20000 for two attendants employed for four summer months to collect parking fees and clean the toilets. The farmer is currently asking 80,000 rupees for the car park.

Because the lane to the car park is so narrow, double yellow lines on each side prohibit all waiting. The council has to employ two wardens, costing rupees 10000 a year, to ensure that the no-waiting restriction is strictly observed. Even so, frequent hold-ups mean that the return journey averages thirty-two minutes.

The town planning authorities will thereafter estimate that if it took over the car-park and made parking free, the cars using the park would increase by 10,000 a year. The increase in the number of visitors would require extra toilets costing nearly 20,000 rupees. These could be supervised and cleaned by the existing two men since nobody would be needed to collect parking fees.

The extra traffic would also necessitate widening the approach lane at a cost of nearly 2 lakh rupees. After the road improvements, the return journey to the beach would only take twenty minutes. It is estimated that the 12 minutes saved is worth 2 rupees per car journey. Moreover, the tow traffic wardens employed at rupees 10000 would no longer be necessary.

The scheme has a further advantage for the council: enlarging the town’s parking facility by some eight miles costing rupees 5 lakhs need no longer be proceeded with since people are likely to prefer the beach once car-parking is free. Finally, it is assumed that there is full employment and no inflation. This is one typical example of a development process in the Kochi Real Estate sector.