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Optimal Transport Networks in Spatial Equilibrium

Pablo D. Fajgelbaum and Edouard Schaal

No 23200, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F11 O18 R13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-net, nep-tre and nep-ure
Date: 2017-02
Note: ITI
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