Review of Methods for Estimating the Economic Impact of Transportation Improvements

Transportation analysts and the public decision-makers they support are confronted with a broad range of analytical tools for estimating the economic impacts of improvements to transportation networks. Many of the available models operate at different scales and have distinctly different structures, making them more or less appropriate for analyzing the impacts of different types of projects. Here, we review several of the economic methods and models that have been developed for analyzing the impact of transportation improvements, giving special attention to types of projects that add highway capacity in urban areas. We review project-based methods, including benefit-cost analysis and several analytical software tools developed by the Federal Highway Administration (FHWA) for economic analysis of transportation investment. We then move on to aggregate and disaggregate-level econometric methods, including regional economic models, hedonic price functions, production functions and cliometric analyses. We also devote some attention to the role of induced demand in economic evaluation, since it is often one of the most uncertain and confounding factors faced by those charged with conducting economic evaluation of transportation projects