BENEFITS OF TRANSPORT INFRASTRUCTURE INVESTMENTS. A SPATIAL COMPUTABLE GENERAL EQUILIBRIUM APPROACH

Abstract

The benefit assessment problem is examined in an economy-wide perspective using a spatial computable general equilibrium model of a multi-regional economy. Here the core question is whether the total net benefits to society of a transport route improvement are also captured by considering full benefits to traffic in a second-best economy. The analysis begins by considering a first-best economy in which inter-regional transport costs of goods are explicitly treated. The results confirm that in the first-best case the economy-wide benefits of the improvement are correctly measured by benefits to traffic. The analysis is then extended to consider second-best cases by incorporating various taxes. Furthermore, the case of increasing returns to scale is investigated. The implication of passenger transport for the analysis is studied and, finally, a benefit analysis is also undertaken by assuming that the transport improvement gives rise to an external effect. Under this assumption, the benefits to traffic substantially underestimate the economy-wide benefits.