The Welfare Effects of Transportation Infrastructure Improvements

95 Pages Posted: 30 Jan 2019 Last revised: 22 Aug 2022

See all articles by Treb Allen

Treb Allen

Dartmouth College

Costas Arkolakis

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Date Written: January 2019

Abstract

Each year in the U.S., hundreds of billions of dollars are spent on transportation infrastructure and billions of hours are lost in traffic. We incorporate traffic congestion into a quantitative general equilibrium spatial framework and apply it to evaluate the welfare impact of transportation infrastructure improvements. Our approach yields analytical expressions for transportation costs between any two locations, the traffic along each link of the transportation network, and the equilibrium distribution of economic activity across the economy, each as a function of the underlying quality of infrastructure and the strength of traffic congestion. We characterize the properties of such an equilibrium and show how the framework can be combined with traffic data to evaluate the impact of improving any segment of the infrastructure network. Applying our framework to both the U.S. highway network and the Seattle road network, we find highly variable returns to investment across different links in the respective transportation networks, highlighting the importance of well-targeted infrastructure investment.

Suggested Citation

Allen, Treb and Arkolakis, Costas, The Welfare Effects of Transportation Infrastructure Improvements (January 2019). NBER Working Paper No. w25487, Available at SSRN: https://ssrn.com/abstract=3324110

Treb Allen (Contact Author)

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States

Costas Arkolakis

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8264
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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