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Competition, Transport Infrastructure Investments and Cost-Benefit Analysis

By José C. Meléndez-hidalgo


The welfare effects of transport cost reductions resulting from infrastructure improvements are investigated for an asymmetric-costs Cournot oligopoly embedded in a transport network. Transport user’s (direct) benefits are compared to economy-wide effects in order to assess the so-called indirect effects, not captured in a standard cost-benefit analysis. Implications for the first and second-best rules of investment in infrastructure are derived and their relation with competition-enhancing (-weakening) properties of transport capacity expansions is shown to hinge on demand’s concavity (i.e. the fraction of transport cost reductions that is passed on to consumers). Moreover, the magnitude and sign of the ratio of indirect effects to direct benefits depends inversely on the degree of diseconomies of scale and congestion externalities. This ratio has a non-monotonic relation with the curvature of demand and is negative for transport links with an initial level of demand below a certain threshold. Relying on numerical simulations, within a model calibrated for representative homogeneous-good industries (i.e. cement and steel), the analysis of non-marginal transport cost reductions ends the paper

Topics: Transport Infrastructure, Competition, Cost-Bene…t Analysis, Congestion. JEL Classi…cation. L13, L90, H54, D61, D62
Year: 2013
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