Welfare Analysis in Spatial Equilibrium

Abstract

Transport cost-benefit analysis (CBA) is a key tool in policy-making, yet its methodology has remained largely unchanged for decades. This paper integrates transport appraisal into a quantitative spatial model (QSM) with endogenous time valuation, enabling welfare analysis in both partial equilibrium (PE) and spatial general equilibrium (SGE) settings. We quantify welfare using two competing approaches: a conventional PE method based on direct user benefits and approximated agglomeration effects, and a structurally consistent SGE framework that captures the full reorganisation of economics activity in space. The latter is implemented via a welfare decomposition that aligns closely with standard CBA components. Empirically, the resulting welfare estimates are of similar magnitude across approaches, with SGE estimates falling within the range of PE outcomes. This suggests that adopting a general equilibrium framework is unlikely to fundamentally alter project rankings. Monte Carlo simulations confirm a strong correlation between methods, with differences emerging primarily for smaller interventions.