Wider Economic Benefits in Transport Appraisal, a SCGE-model Approach with Application to a Proposed Norwegian Road Infrastructure Project.
W Hansen, Institute of Transport Economics, NO; O Ivanova, TNO, NL
A Spatial Computable General Equilibrium model is developed on Norwegian data and applied to investigate the presence of wider economic benefits in a proposed Norwegian road infrastructure project.
Larger infrastructure investments commonly generate considerable public debate, in which there often is a gap between the professional and popular project specific benefits. When a project proposal is rejected it is often argued that the traditional cost-benefit analysis do not capture the actual benefits from that particular project. This paper outlines the theoretical foundation behind cost-benefit analysis (CBA) in transport appraisal and the presence of wider economic benefits in cases of imperfect secondary markets. A Spatial Computable General Equilibrium (SCGE) model is developed on Norwegian data and applied to quantify wider economic benefits in a proposed Norwegian road infrastructure project.
CBA in transport appraisal
In a traditional and well specified CBA it is assumed that all relevant benefits from the infrastructure investment are captured in the analysis. Most manuals for transport appraisal focus on the direct transport user benefits and costs, such as:
- The transport users and merchandise owners time- and reliability benefits
- Profits from public transport companies and other companies in the transport sector
- Public budget effects
- Accident costs, emission costs, noise costs, etc.
A traditional CBA assumes perfect competition in all markets. From economic theory we know that with a reasonable degree of perfect competition only the benefits accrued by the users of the infrastructure form the net benefit in the CBA. Adding spillover effects in a perfect competitive environment will only result in double counting. When price equals social marginal cost, the effects of the traffic improvement on secondary markets will be nothing more than transformed forms of the utility devolved by the traffic users in the primary market. Hence, partial considerations are sufficient when markets are characterized with a reasonable degree of perfect competition.
Wider economic benefits
Market imperfections in the transport using sectors will, independent of the market structure in the transport sector, produce utility effects not cancelling out. Such market imperfections may lead to an under estimation of the user benefit in the CBA. Wider economic benefits are benefits not captured in the direct user benefits in a well constructed CBA, after allowing for technological external effects.
The most important economic effects not captured in a traditional CBA can be summarized in four categories:
- Agglomeration effects
- Labour market effects
- Increased production in imperfect markets
- Increased competition in imperfect markets
There is a large literature on the wider economic benefits of transport infrastructure investments. In the literature a variety of scientific methods are used to investigate the presence of wider economic benefits, the most common being:
- Micro surveys with firms
- Estimation of quasi production functions
- Partial equilibrium potential models
- Macro and regional economic models
- Land Use / Transportation Interaction models
- Spatial Computable General Equilibrium (SCGE) -models
Developing and applying a SCGE-model on a Norwegian proposed road infrastructure project
The paper develops a multiregional SCGE-model on data from sources such as the Norwegian national accounts by county, the Norwegian national transport modeling system, the foreign trade statistics and the Norwegian commodity flow survey. The developed SCGE model departs from the assumption of constant returns to scale and perfect competition in all markets, and take into account commodity-, commuting- and migration flows between the regions in the model.
The SCGE-model is applied on a proposed, and much debated, large Norwegian road infrastructure project in order to evaluate the presence of wider economic benefits associated with this infrastructure investment.
Multiregional SCGE-models typically aim at quantifying regional effects of transport infrastructure investments or changes in transport policy. An infrastructure investment or policy change lead to changes in the trade costs which produce repercussions in the transport using sectors and other related markets. SCGE-models embrace the entire economy, making these models specially suited for analyzing wider economic benefits of transport investments through the link between the transport sector and the transport using sectors, acknowledging that an exogenous change in one sector may produce repercussions throughout the economy.
Association for European Transport