Optimal Transport Networks in Spatial Equilibrium

81 Pages Posted: 27 Feb 2017

See all articles by Pablo D. Fajgelbaum

Pablo D. Fajgelbaum

University of California, Los Angeles (UCLA)

Edouard Schaal

New York University (NYU), Department of Economics

Date Written: February 2017

Abstract

We study optimal transport networks in spatial equilibrium. We develop a framework consisting of a neoclassical trade model with labor mobility in which locations are arranged on a graph. Goods must be shipped through linked locations, and transport costs depend on congestion and on the infrastructure in each link, giving rise to an optimal transport problem in general equilibrium. The optimal transport network is the solution to a social planner’s problem of building infrastructure in each link. We provide conditions such that this problem is globally convex, guaranteeing its numerical tractability. We also study cases with increasing returns to transport technologies in which global convexity fails. We apply the framework to assess optimal investments and inefficiencies in observed road networks in 25 European countries. The counterfactuals suggest larger gains from road network expansion and larger losses from misallocation of current roads in lower-income countries.

Suggested Citation

Fajgelbaum, Pablo D. and Schaal, Edouard, Optimal Transport Networks in Spatial Equilibrium (February 2017). NBER Working Paper No. w23200. Available at SSRN: https://ssrn.com/abstract=2924290

Pablo D. Fajgelbaum (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

Edouard Schaal

New York University (NYU), Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

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