Modeling a micro-structure of agglomeration economies, this article derives a second-best benefit evaluation formula for urban transportation improvements. Without explicitly modeling the sources of agglomeration economies, Venables (JTEP 2007) investigated the same problem. This article...

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...