| By: |
Johansson, Per-Olov (CERE - the Center for Environmental and Resource Economics);
de Rus, Gines (University of Las Palmas de G.C., FEDEA and University Carlos III de Madrid) |
| Abstract: |
This paper discusses how to evaluate a large project when there is a
substitute. The new large project causes discrete price adjustments in the
substitute market. For example, a new high-speed rail may shift the demand
curve for flight tickets to the left and reduce their price, in turn shifting
the demand curve for train tickets to the left. There are several different
ways to handle this complication, and we hopefully provide some guidance how
to proceed. In particular, we point at an approach that captures the general
equilibrium effects of a considered project in its output market. In theory at
least, this approach provides a simple short-cut in cost-benefit analysis of
(infrastructure and other) projects that are so large that they have a
noticeable impact on equilibrium prices in other markets. A similar shortcut
for transport projects that affect time costs is also supplied. |
| Keywords: |
Cost-bene fit analysis; large projects; substitutes; time costs |
| JEL: |
D61 H43 R40 |
| Date: |
2018–09–17 |
| URL: |
http://d.repec.org/n?u=RePEc:hhs:slucer:2018_007&r=ppm |