Abstract
Additional investment in road capacity causes peak shifting to occur, or the time pattern of traffic flows to change. Standard cost-benefit evaluation of capacity expansion ignores peak shifting. This paper examines the dynamic nature of peak shifting and shows that ignoring peak shifting in cost-benefit analysis leads to an overestimate of benefits and excessive capacity investment. The paper analyzes both a second-best world, where congestion is unpriced, and a first-best world as a benchmark.
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