Cost-Benefit Analysis for Transport Networks: Theory and Application

Practical methods for estimating benefits corresponding to second-best situation are derived by modelling a congestion-prone transport network explicitly. A change in total benefit of an investment in transport infrastructure can be calculated in three ways: (a) the sum of the changes in consumers' and producers' surpluses in all routes; (b) the sum of the changes in consumers' and producers' surpluses in the invested routes, plus the change in the deadweight loss in all other routes; and (c) the change in the total benefits in the first-best case a change in the deadweight loss in all routes. Applying method (c), the author demonstrates that the final benefits of distortion-relieving policies are simply the sum of a change in the deadweight loss in all routes. Theoretical results are derived in practically useful forms, and then illustrated with examples. © The London School of Economics and the University of Bath 2004