THE FREE-ACCESS PARADOX AND INDUCED DEMAND: OPTIMIZING TRANSIT HIGHWAY GOVERNANCE IN GEORGIA

Abstract

This paper evaluates a hybrid institutional model for governing international transit highways in Georgia, with the Rikoti Pass section of the E-60 serving as a policy simulation case. The study combines institutional economics, public-choice theory, and transport economics to examine what the authors term “the free-access paradox”: when a capacity-constrained road is priced at zero, individual use decisions do not reflect the congestion and infrastructure costs imposed on other users and the public sector. The methodology is a transparent, parameterized mathematical simulation rather than an econometric estimation. It integrates a Bureau of Public Roads travel-time function, an endogenous short-run demand response and a social-welfare objective that treats toll revenue as a fiscal transfer rather than a social benefit. Under the stated reference assumptions, the fleet-average welfare-maximizing equivalent toll is approximately 44.04 GEL per vehicle. Meanwhile, premium-corridor demand declines from 12,000 to approximately 10,027 vehicles per day, and modeled operational welfare increases by about 34,185 GEL per day, or 2.83% relative to the free-access benchmark. The estimate excludes unverified fixed implementation costs and does not explicitly model congestion on the toll-free historical route. These results support a staged data-validation and pilot process, not the immediate adoption of a specific tariff. The paper’s institutional contribution is the integration of differentiated charging, public-private partnership governance, intelligent tolling, and a safeguarded free alternative within a single policy framework.