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 in-vestment in a conventional cost benefit analysis (CBA) assuming perfect competition. Lower transport costs induces search over a larger area and longer commuting distances. The ex-pected duration of vacancies is reduced with ensuing benefits outweighing the loss to in-creased 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 sub-stantial.
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- Krugman, Paul, 1991.
"Increasing Returns and Economic Geography,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 483-99, June.
- 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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