Scale economies analysis for urban highway networks

Abstract

Extending scale economies analysis from an individual highway to an urban highway network leads to an interesting new problem. When demand increases in a network, establishing a new long run equilibrium may require either increasing the capacities of existing links or adding new links (e.g., new roads, interchanges, overpasses). This paper develops a theoretical framework for analyzing economies of scale in this setting and then uses that framework to obtain a psuedo-empirical estimate of returns to scale. The results suggest that mild scale economies exist in urban highway travel.