A simple computable general equilibrium model of a multiregional economy is used to examine, whether a partial equilibrium measure of road investment benefits (i.e. transport cost savings for existing traffic plus benefits to newly generated traffic) is a good approximation of the total net welfare gains computed through a general equilibrium analysis of such an investment. It is shown that given perfect markets, the partial measure is almost exactly equal to the total net welfare gains. In particular it is noted that this finding holds for small as well as big reductions in transport costs. The analysis also confirms that using transport as an intermediate good does not change this relationship as such benefits are relationship as such benefits are reflected in the total net welfare gains accruing to the consumers of the final goods. Moreover the results show that the benefits measured in terms of changes in national income always overestimate the true total net welfare gains. (A)
Abstract