NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Transport Networks in Spatial Equilibrium

Pablo D. Fajgelbaum, Edouard Schaal

NBER Working Paper No. 23200
Issued in February 2017, Revised in March 2017
NBER Program(s):International Trade and Investment

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.

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Document Object Identifier (DOI): 10.3386/w23200

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