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Cost-benefit analysis of transport investments in distorted economies

Author

Listed:
  • 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.

Suggested Citation

  • Edward Calthrop & Bruno De Borger & Stef Proost, 2008. "Cost-benefit analysis of transport investments in distorted economies," Working Papers of Department of Economics, Leuven ces0818, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces0818
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    2. Nicole Adler & Chris Nash & Eric Pels, 2008. "High-Speed Rail & Air Transport Competition," Tinbergen Institute Discussion Papers 08-103/3, Tinbergen Institute.
    3. Stef Proost, 2011. "Theory of External Costs," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 14, Edward Elgar Publishing.
    4. Mizutani, Fumitoshi, 2024. "Empirical analysis of the factors behind rail infrastructure investment," Transport Policy, Elsevier, vol. 150(C), pages 244-254.
    5. Xuto, Praj & Anderson, Richard J. & Graham, Daniel J. & Hörcher, Daniel, 2021. "Optimal infrastructure reinvestment in urban rail systems: A dynamic supply optimisation approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 147(C), pages 251-268.
    6. Qu, Junxi & Yang, Tianren & Nam, Kyung-Min & Kim, Euijune & Chen, Yimin & Liu, Xingjian, 2024. "Transport network changes and varying socioeconomic effects across China's Yangtze River Delta," Journal of Transport Geography, Elsevier, vol. 121(C).
    7. Bruno Borger & Stef Proost, 2016. "The political economy of pricing and capacity decisions for congestible local public goods in a federal state," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 934-959, October.
    8. Hörcher, Daniel & Tirachini, Alejandro, 2021. "A review of public transport economics," Economics of Transportation, Elsevier, vol. 25(C).
    9. Jonas Westin, 2011. "Labor Market Effects of Road Pricing in a Population with Continuously Distributed Value of Time," ERSA conference papers ersa10p1458, European Regional Science Association.
    10. 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).
    11. Jiang, Xiushan & He, Xiang & Zhang, Lei & Qin, Huanhuan & Shao, Fengru, 2017. "Multimodal transportation infrastructure investment and regional economic development: A structural equation modeling empirical analysis in China from 1986 to 2011," Transport Policy, Elsevier, vol. 54(C), pages 43-52.
    12. Peyman Babashamsi & Nur Izzi Md Yusoff & Halil Ceylan & Nor Ghani Md Nor & Hashem Salarzadeh Jenatabadi, 2016. "Sustainable Development Factors in Pavement Life-Cycle: Highway/Airport Review," Sustainability, MDPI, vol. 8(3), pages 1-21, March.
    13. Kilani, Moez & Proost, Stef & van der Loo, Saskia, 2014. "Road pricing and public transport pricing reform in Paris: Complements or substitutes?," Economics of Transportation, Elsevier, vol. 3(2), pages 175-187.
    14. Mogens Fosgerau & Kurt Van Dender, 2013. "Road pricing with complications," Transportation, Springer, vol. 40(3), pages 479-503, May.
    15. Tscharaktschiew, Stefan, 2020. "Why are highway speed limits really justified? An equilibrium speed choice analysis," Transportation Research Part B: Methodological, Elsevier, vol. 138(C), pages 317-351.
    16. Stef Proost & Fay Dunkerley & Saskia Loo & Nicole Adler & Johannes Bröcker & Artem Korzhenevych, 2014. "Do the selected Trans European transport investments pass the cost benefit test?," Transportation, Springer, vol. 41(1), pages 107-132, January.
    17. Lindgren, Petter Y. & Presterud, Ane Ofstad, 2021. "Expanding the Norwegian Armed Forces in the Time of Corona: Benefit-Cost Analysis in the Context of High Unemployment Rate," MPRA Paper 106405, University Library of Munich, Germany.
    18. 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.
    19. De Borger, Bruno & Proost, Stef, 2012. "A political economy model of road pricing," Journal of Urban Economics, Elsevier, vol. 71(1), pages 79-92.
    20. Pita, João P. & Adler, Nicole & Antunes, António P., 2014. "Socially-oriented flight scheduling and fleet assignment model with an application to Norway," Transportation Research Part B: Methodological, Elsevier, vol. 61(C), pages 17-32.
    21. 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.
    22. Yamada, Tadashi & Febri, Zukhruf, 2015. "Freight transport network design using particle swarm optimisation in supply chain–transport supernetwork equilibrium," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 75(C), pages 164-187.
    23. 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.
    24. Eliasson, Jonas & Fosgerau, Mogens, 2019. "Cost-benefit analysis of transport improvements in the presence of spillovers, matching and an income tax," Economics of Transportation, Elsevier, vol. 18(C), pages 1-9.
    25. 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.

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    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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