Working Paper: NBER ID: w25487
Authors: Treb Allen; Costas Arkolakis
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.
Keywords: Transportation Infrastructure; Welfare Effects; Traffic Congestion; Economic Activity; Investment Returns
JEL Codes: H54; R12; R13; R41; R42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improvements in transportation infrastructure (R42) | Positive welfare effects (D69) |
| Traffic congestion (L91) | Welfare elasticity of improving each link (D69) |
| Ignoring traffic congestion (L91) | Different investment priorities (G11) |
| Improved infrastructure (H54) | Changes in observed traffic flows (R41) |
| Average annual return on investment for US highway network (R42) | Positive welfare effects (D69) |
| Average annual return on investment for Seattle road network (R42) | Positive welfare effects (D69) |
| Some segments yielding returns exceeding 400% (G17) | Positive welfare effects (D69) |
| Some segments resulting in negative returns (G19) | Negative welfare effects (D69) |