An Economic Theory Perspective on Optimal Design of Government of Regional Infrastructure in Australia: The Case of National Transport

Australia is facing a potentially huge need for investment in infrastructure investment in the coming decades to deal with growing population, shifting economic and demographic patterns, and adaptation to sea level rise and other effects of climate change. There is, however, an institutional challenge that is making the necessary financing and investment difficult to come by. The basic problem is that the government institutions responsible for raising revenue and expending it do not match up well with the regions that infrastructure systems serve, regions that typically cross governmental decision-making boundaries. This paper applies an economic theory approach to this problem. The relevant literature in public choice, public economic and fiscal federalism is reviewed to uncover economic thinking about ‘optimal’ government institutional design. Then more specific thinking about infrastructure governance is discussed. A consideration of the economic meaning of regions follows. Then the specifics of the Australian constitution as it pertains to regional infrastructure, with a focus on transport, are presented. And the theory and practice are tied together to formulate an economics-based framework for optimal design for Australian infrastructure governance. The paper closes with some policy conclusions.