Welfare evaluation with a road capacity constraint

Severe traffic congestion in and around many cities across the world has resulted in programmes of extensive road building and other capacity increasing projects. But traffic congestion has often not fallen in the long run and neither has journey speed increased. Demand for peak period road travel, particularly by car, has grown so strongly that increases in road capacity have been quickly matched by increased road use. This paper develops a model of a road network characterised by insatiable road passenger (car and bus) demand. The model parameters are calibrated on a typical urban road network, and a number of simulations conducted to determine social welfare after the introduction of a road capacity constraint into the optimisation process. The empirical results have an important policy implication for the evaluation of projects that increase road capacity, namely that standard methods of cost-benefit analysis may tend to overestimate the net benefits of such projects by a significant amount. Although the model is developed in the context of roads and road traffic congestion, it could also be applied to air travel.