Cost Benefit Analysis of a Transport Improvement in the Case of Search Unemployment
We examine the implications of search unemployment for the evaluation of a transport investment in a conventional cost benefit analysis (CBA) assuming perfect competition. Lower transport costs induce search over a larger area and longer commuting distances. The expected duration of vacancies is reduced with ensuing benefits outweighing the loss to increased transport. The search imperfection drives a wedge between the marginal product of labour and the wage, such that the final benefits of a transport improvement exceed those of a conventional CBA. Using a simulation model we find these additional benefits may be substantial. © 2008 LSE and the University of Bath
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