Cost-Benefit Analysis of Transport Investments in Distorted Economies

43 Pages Posted: 19 Sep 2008

See all articles by Edward Calthrop

Edward Calthrop

European Union - European Investment Bank

Bruno De Borger

University of Antwerp - Department of Economics

Stef Proost

KU Leuven - Department of Economics

Date Written: July 2008

Abstract

This paper deals with costs-benefit analysis of investment in transport infrastructure. Its contribution is twofold. Firstly, we develop a general equilibrium model to explore the impact of a small budgetary-neutral investment in transport infrastructure in a second-best setting, where other markets in the economy are distorted by taxes or external costs. The model incorporates different transport modes that are used both for intermediate inputs (freight) and for final consumption (passenger travel). An intuitive operational expression for the net economic benefit of an investment is derived that depends on the way the investment is financed. This expression generalizes recent findings in the literature. Secondly, we illustrate the results numerically using a small example. Our findings show that both the specific financing instrument used and the labour market consequences may have large implications for the net benefits of transport investments. Significant errors may be made in limiting cost-benefit analysis to transport markets only.

Keywords: cost-benefit analyis, transport investments, marginal cost of funds

JEL Classification: H23, H43, H54, R13, R42

Suggested Citation

Calthrop, Edward and De Borger, Bruno and Proost, Stef V., Cost-Benefit Analysis of Transport Investments in Distorted Economies (July 2008). Available at SSRN: https://ssrn.com/abstract=1268222 or http://dx.doi.org/10.2139/ssrn.1268222

Edward Calthrop

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

Bruno De Borger

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32/3/220.40.31 (Phone)
+32/3/220.47.99 (Fax)

Stef V. Proost (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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