A review of computable general equilibrium models for transport and their applications in appraisal

Abstract

In the transport planning process, decision makers require reliable and informative appraisals to facilitate comparisons and determine if a proposal is worthwhile to society. The cost–benefit analysis is the most common form of appraisal, where benefits are primarily measured from the change in consumer surplus in the transport market. However, these benefits will only reflect maximum social welfare if markets operate perfectly competitively and without any market failures. There may be significant uncaptured impacts, known as wider economic impacts, which agencies are beginning to incorporate in appraisals using ad-hoc methods. Computable general equilibrium (CGE) models are an increasingly popular method for assessing the economic impact of transport, including both direct and wider economic impacts, as they can determine the distribution of impacts among every market and agent in the economy by simulating the behaviour of households, firms and others from microeconomic first principles. Aside from their traditional role estimating changes in macroeconomic variables, CGE models can provide a measure of welfare that guarantees no double counting and accounts for nth order effects. This paper reviews the full range of CGE models that have been applied to transport issues and discusses their role in transport appraisal. CGE models for transport have been developed in urban, regional and environmental economics as well as other fields, and each field has applied its own theory, assumptions and practices to represent the relationships between transport and the economy relevant to the field. This paper also discusses the general role of CGE modelling in transport appraisal, as well as theoretical and practical concerns regarding CGE modelling practice.