Mark Thissen, The Netherlands Institute for Spatial Research
, The Hague, The Netherlands, Frank Van Oort, Netherlands Institute for Spatial Research (RPB) & Urban Research Centre Utrecht (URU), The Hague, The Netherlands
Economical Infrastructure in Spatial General Equilibrium Modeling (assigned to theme
The importance of infrastructure for economic development is generally accepted. The recent increased interest in economic geography emphasizing the importance of agglomerations has even strengthened the arguments in favor of investments in infrastructure. However, at the outset it is not apparent whether beneficial economic effects of new infrastructure outweigh the costs of construction. It is therefore often suggested, and obligatory in the Netherlands, to implement a cost benefit analysis (CBA) before large scale infrastructure projects are to be implemented. In this paper we set up a framework to identify the most important infrastructure links such that the government can easily prioritize the possible infrastructure projects without implementing a costly ‘full-fledged’ CBA. We therefore extend a spatial applied general equilibrium model for the Netherlands (RAEM) which is based on monopolistic competition and agglomeration effects, with a transport model. After identifying social welfare functions for the country under investigation we set up a nonlinear optimization model with the model being a constraint to the social welfare function. The social welfare functions will be based on economic growth (production measure), shortest traveling times (direct effects cost benefit analyses) and a ‘true’ welfare function (complete cost benefit analyses). Using the optimization model we can determine economic shadow prices on the capacity of transport links and identify the economically most valuable links. This gives a priority list for the government with regard to infrastructure projects. However, because all links are interdependent it is not obvious what combination of infrastructure projects should be implemented. We will therefore use optimization under a government budget constraint to determine what combination of transport links can best be improved.
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(copyright Gunther Maier) |