Characteristics of infrastructure development and management

Broadly, following are the characteristics of infrastructure development and
management.

Natural Monopoly Character of Infrastructure

The most general economic characteristic of modern infrastructure is the supply of services through a networked delivery system designed to serve a multitude of users. This is especially true for piped water, electric power, telecommunications, sewerage, and rail services. Many infrastructure facilities are characterised by declining costs, leading to what is known as a natural monopoly situation. It is important to remember that natural monopoly arises out of technological factors and not due to policy.

It may also be pointed out that the services of infrastructure will be non-tradable. To give an example: should there be insufficient demand for electricity in place A, its supply may be diverted to place B; however, one will not be able to do that for the transmission system that brings electricity to place A. Hence the transmission system is non-tradable even though electric power itself may be tradable.

Public Goods Character of Infrastructure

The demand for infrastructure services arises from both industry and individuals. However, since it is not possible to create infrastructure facilities in an incremental fashion – investments are lumpy – such facilities have to be built complete for a particular size. Hence, in the initial stage supply will be greater than the demand for such facilities while the reverse may occur over a period of time. This characteristic of infrastructure services, generally, that supply is greater than demand, indicates that consumption of its services is non-rival. Such non-rivalness is a characteristic of public goods. The characteristic of non-rivalness implies zero marginal cost of providing benefits of a public good (infrastructure in this case) to an additional consumer. In this sense infrastructure creates external benefits or positive externalities. However, infrastructure services have one characteristic that is absent in the case of pure public goods namely, price exclusion, whereby the enjoyment of benefits is contingent on payment of charges.

Representation of Infrastructure in National Accounts

From the national accounts point of view, infrastructure would form part of the capital stock of the nation. However, in the year it is created the infrastructure facility would be part of production for that accounting period. Where the production spills over numerous periods, it may be necessary to recognise that output is being produced continuously and record it as a work-in-progress. This would be in keeping with the recommendations of Once the infrastructure is completed, its contribution is in terms of the services it provides by its usage. Thus, the output of transportation would be measured by the value of the amount receivable for transporting goods and persons. The volume of transport services would be measured by indicators such as tonnekilometres or passenger-kilometres  However, in the case of roads, the situation is different. For a long time the facility was provided by the Government, though now, there is private provision as well. However, services on roads are provided by different entities, both public and private.

Distinction between Physical and Social Infrastructure

Even though social infrastructure is not considered here, it will be appropriate to extend the notion of infrastructure proposed here to the social sector as well.

Thus, a hospital or a school would constitute the infrastructure facility, which will provide services in the form of health care and education over a period of time. However, one will have to be careful not to attribute all the characteristics of infrastructure listed above to the social sector. For instance, it cannot be argued that a hospital facility is a natural monopoly even though a substantial amount of sunk costs may be involved. Further, as far as bestowing externalities is concerned, this is more likely to be true for basic health care, possibly preventive health care, while externalities may diminish in the case of higher end health care, and possibly curative health care.

 

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