Many sources of urban agglomeration, such as the gains from variety, better matching, and knowledge creation and diffusion, involve departures from the first-best world. Benefit evaluation of a transportation project must then take into account changes in excess burden along with any direct user...

Many sources of urban agglomeration involve departures from the first-best world. By modeling the microstructure of agglomeration economies, we derive second-best benefit evaluation formulae for urban transportation improvements. Previous work has investigated the same problem, but without...