The Kaldor–Hicks Criterion Applied to Economic Evaluation of Urban Consolidation Centers

Abstract

Urban Consolidation Centers (UCC) cases, like in Tenjin, Japan, or in Lucca, Italy, have shown vehicle optimization and a decrease in environmental and social impacts of freight transportation activities. Nonetheless, financial sustainability is a barrier for their operation, especially because it is not common to consider environmental and social impacts in cost–benefit analysis. There is a lack of literature about the economic evaluation of UCC addressing stakeholder’s cost–benefit with reduction of externalities. The objective of this paper is to present an example of how to incorporate social and environmental impact in a UCC economic evaluation and according to the Kaldor–Hicks criterion, to demonstrate that UCC implementations might be justified even when public subsidies are necessary. A neighborhood of São Paulo city, Brazil, was used as a reference for a simulated UCC implementation. The simulated direct costs of the UCC operations were 13.7% higher than the baseline scenario, however, using the Kaldor–Hicks criterion and incorporating benefits for stakeholders, the benefits compensate the additional operating cost. This new approach to UCC economic evaluation that monetizes and incorporates environmental and social benefits for stakeholders might support decision-makers to optimize freight transportation systems while reducing negative effects of this activity.