Public investment for developing port facilities within competitive market

Ports serve as major hubs and intermodal connections between marine transportation systems and intercontinental surface transportation networks. Often funded by multiple public sources, port facility projects can increase regional productivity and global competitiveness. Strategic investment in one port may affect the investment decisions of rival ports. The Harbor Assistance Program (HAP), administered by the Wisconsin Department of Transportation (WisDOT), which provided grants to maintain and improve waterborne commerce. Although HAP proposals are subject to Benefit-Cost Analysis (BCA), network competitive impacts are not included. Because BCA does not address competition, it falls short of projecting full economic outcomes. This study focuses on the network competitive impacts of public funding for ports. This research offers an analytical model for evaluating the relationship between port shipment volumes and public investment, focusing on the mutual effects between ports which receive different amounts of funding. Game theory suggests that a port will adjust its own productivity level to maximize profits in response to changes in the productivity of other ports. The ports of Milwaukee and Green Bay, Wisconsin are analyzed and modeled as a case study. The interaction of these rival ports is modeled as a strategic game in an oligopolistic market, solving for an equilibrium of productivity using the Cournot-Nash equilibrium combined with nonlinear Complementarity Problem (CP) analysis. The General Algebraic Modeling System (GAMS) was used for numerical analysis. The scenarios of port specializations were tested by using a sensitivity model that was calibrated with information on commodity flows, public funding, and port expenditures collected from the ports, WisDOT, the U.S. Army Corps of Engineers (USACE), and interviews with stakeholders. The results of this work can inform public investment decisions for maintaining and developing port facilities. The model formulation estimates the level of the public sector investment that will produce an equilibrium of the productivities of multiple ports in a competitive market.