Cost–Benefit Analysis for Transport Projects in an Agglomeration Economy

The progress of the new economic geography has elucidated the microfoundations of agglomeration. However, the best way of dealing with the effect of agglomeration in a cost–benefit analysis for individual transport projects is still uncertain. The purpose of this paper is to clarify how conventional cost–benefit analysis can incorporate the effect of agglomeration in models with the features of the new economic geography. We illustrate the departures from conventional cost–benefit analysis by decomposing the overall effects of transport investments into various forms, and we consider how to apply the results in practice.