Societal Costs and Benefits of Cooperation Between Port Authorities
P Wortelboer-van Donselaar, J Kolkman, KiM Netherlands Institute for Transport Policy Analysis, NL
This paper will summarize the results of a study of the Netherlands Institute for Transport Policy Analysis (KiM) on costs and benefits of cooperation between port authorities (Wortelboer en Kolkman, Samenwerking tussen Zeehavens, December 2008). The paper will elaborate on the question whether, and if so, how, cooperation between port authorities can contribute to our societal welfare and what role the national government can play in promoting this cooperation.
Seaports compete with each other for cargo and turnover. From an economic perspective, this competition is a sound principle. In markets that work properly competition leads to downward pressure on prices, which creates a balance between supply and demand that improves welfare for society in general. However, competition can also have side effects that reduce societal welfare. Competition can complicate sustainable development, for instance with respect to the efficient use of space. Competition can also be a major incentive for each individual port to argue in favour of government investment in port-related hinterland infrastructure that would not be needed, or would be less necessary, if adequate cooperative arrangements were available.
Cooperation between seaports offers possibilities for counteracting the undesirable side effects of competition. It also offers opportunities for the parties involved to improve efficiency. This can in turn help to improve the competitive position in relation to other (inter)national ports, which can also have social benefits. On the other hand, there are several reasons why these potential social benefits do not imply that every type of cooperation by definition leads to a net improvement in societal welfare. Firstly, positive and negative effects can occur simultaneously. An increase in cargo can offer benefits in terms of added value, but it can also have disadvantages in terms of environmental quality. Secondly, there can also be negative effects if cooperation is aimed at limiting competition, or if less competition is an unintentional side effect of cooperation. This could lead to market power that in turn could lead to higher prices than under perfect competitive circumstances.
Cooperation between seaports can also contribute to achieving policy goals of the Dutch Ministry of Transport. These goals concentrate on facilitating growth in cargo flows within the limits of sustainability conditions. Cooperation might also contribute to the optimal deployment of investments by the national government, and therefore to the efficiency of government investments. Large infrastructure projects that increase port accessibility or improve hinterland transport are two major examples.
The potential social benefits and the contribution to policy goals of cooperation between seaports do not automatically mean that there is a role for the national government. The role of the national government in encouraging or curbing cooperation between seaports is determined by the contribution to public interests. According to economic theory, there is only a public interest in case of a market failure. Only then government intervention is legitimate. Market failure means that, in a certain situation, the market does not provide the optimum solution. For example, if there are external costs, or if market parties abuse their existing market power. This can also occur in seaports.
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