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Cost-benefit analysis of transport investments in distorted economies

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  • Edward Calthrop
  • Bruno De Borger
  • Stef Proost

Abstract

This paper deals with costs-benefit analysis of investment in transport infrastructure. Its contribution is twofold. Firstly, we develop a general equilibrium model to explore the impact of a small budgetary-neutral investment in transport infrastructure in a second-best setting, where other markets in the economy are distorted by taxes or external costs. The model incorporates different transport modes that are used both for intermediate inputs (freight) and for final consumption (passenger travel). An intuitive operational expression for the net economic benefit of an investment is derived that depends on the way the investment is financed. This expression generalizes recent findings in the literature. Secondly, we illustrate the results numerically using a small example. Our findings show that both the specific financing instrument used and the labour market consequences may have large implications for the net benefits of transport investments. Significant errors may be made in limiting cost-benefit analysis to transport markets only.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0818.

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Date of creation: Jul 2008
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Handle: RePEc:ete:ceswps:ces0818

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Keywords: cost-benefit analysis; transport investments; marginal cost of funds..;

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  1. Kidokoro, Yukihiro, 2006. "Benefit estimation of transport projects--a representative consumer approach," Transportation Research Part B: Methodological, Elsevier, vol. 40(7), pages 521-542, August.
  2. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
  3. Liu, Liqun, 2003. "A marginal cost of funds approach to multi-period public project evaluation: implications for the social discount rate," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1707-1718, August.
  4. De Borger B. & Proost S. & Van Dender K., 2004. "Congestion and tax competition in a parallel network," Working Papers 2004003, University of Antwerp, Faculty of Applied Economics.
  5. Bovenberg, A.L. & Van Der Ploeg, F., 1992. "Environmental Policy, Public Finance and the Labour Market in a Second- Best World," Papers 9243, Tilburg - Center for Economic Research.
  6. Gauthier, Stéphane & Laroque, Guy, 2009. "Separability and public finance," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1168-1174, December.
  7. H. C. W. L. Williams & D. Van Vliet & C. Parathira & K. S. Kim, 2001. "Highway Investment Benefits under Alternative Pricing Regimes," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(2), pages 257-284, May.
  8. Kleven, Henrik & Kreiner, Claus Thustrup, 2006. "The Marginal Cost of Public Funds: Hours of Work versus Labor Force Participation," CEPR Discussion Papers 5594, C.E.P.R. Discussion Papers.
  9. Parry, Ian W.H. & Bento, Antonio Miguel R., 1999. "Revenue recycling and the welfare effects of road pricing," Policy Research Working Paper Series 2253, The World Bank.
  10. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
  11. Kanemoto, Yoshitsugu & Mera, Koichi, 1985. "General equilibrium analysis of the benefits of large transportation improvements," Regional Science and Urban Economics, Elsevier, vol. 15(3), pages 343-363, August.
  12. Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
  13. Ballard, Charles L. & Medema, Steven G., 1993. "The marginal efficiency effects of taxes and subsidies in the presence of externalities : A computational general equilibrium approach," Journal of Public Economics, Elsevier, vol. 52(2), pages 199-216, September.
  14. De Borger B. & Dunkerley F. & Proost S., 2006. "Strategic investment and pricing decisions in a congested transport corridor," Working Papers 2006021, University of Antwerp, Faculty of Applied Economics.
  15. Fosgerau, Mogens & Pilegaard, Ninette, 2007. "Cost-benefit rules for transport projects when labor supply is endogenous and taxes are distortionary," MPRA Paper 3902, University Library of Munich, Germany.
  16. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-79, June.
  17. Yukihiro Kidokoro, 2004. "Cost-Benefit Analysis for Transport Networks: Theory and Application," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 38(2), pages 275-307, May.
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Citations

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Cited by:
  1. Adler, Nicole & Pels, Eric & Nash, Chris, 2010. "High-speed rail and air transport competition: Game engineering as tool for cost-benefit analysis," Transportation Research Part B: Methodological, Elsevier, vol. 44(7), pages 812-833, August.
  2. Nicole Adler & Chris Nash & Eric Pels, 2008. "High-Speed Rail & Air Transport Competition," Tinbergen Institute Discussion Papers 08-103/3, Tinbergen Institute.
  3. DE BORGER, Bruno & PROOST, Stef, 2013. "The political economy of pricing and capacity decisions for congestible local public goods in a federal state," Working Papers 2013020, University of Antwerp, Faculty of Applied Economics.
  4. Hensher, David A. & Li, Zheng, 2013. "Referendum voting in road pricing reform: A review of the evidence," Transport Policy, Elsevier, vol. 25(C), pages 186-197.
  5. De Borger, Bruno & Proost, Stef, 2012. "A political economy model of road pricing," Journal of Urban Economics, Elsevier, vol. 71(1), pages 79-92.
  6. Gershenson, Seth, 2013. "The causal effect of commute time on labor supply: Evidence from a natural experiment involving substitute teachers," Transportation Research Part A: Policy and Practice, Elsevier, vol. 54(C), pages 127-140.
  7. Bröcker, Johannes & Korzhenevych, Artem & Schürmann, Carsten, 2010. "Assessing spatial equity and efficiency impacts of transport infrastructure projects," Transportation Research Part B: Methodological, Elsevier, vol. 44(7), pages 795-811, August.
  8. Anderstig, Christer & Berglund, Svante & Eliasson, Jonas & Andersson, Matts & Pyddoke, Roger, 2012. "Congestion charges and labour market imperfections: “Wider economic benefits” or “losses”?," Working papers in Transport Economics 2012:4, CTS - Centre for Transport Studies Stockholm (KTH and VTI).

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