1

Lecture 1: 11.15 – 12.45July 4, 2007

Dimetic workshopPécs, Hungary

NETHERLANDS INSTITUTE

FOR

SPATIAL RESEARCH

Modeling the spatial pattern of economic activities in the New Economic Geography II

Mark Thissen

2

Contents

• Case 2: The case of terrorism• More about the model: How does it work• Sector development is very different

within the region

• Case 3: The case of Road pricing• Welfare theory revisited• Shortcomings of general equilibrium

theory: How to evaluate partial policy?

3

The case study: Brienenoord Bridge Rotterdam

4

How Does RAEM work I: Infrastructure

5

How Does RAEM work II: Trade and product markets

6

Indirect costs of Terrorism

1. Maximum Costs:- Rebuilding Bridge - Temporary misallocation - Permanent prevention policy change- Analysis: short run model without migration

2. Alternative Costs?- Not re-building the Bridge - Analysis: long run model with migration?

7

Effect on Production and Welfare

Cost:190 million every year; Rebuilding costs 350 million!

8

Conclusions

1. Rebuild the Bridge!

2. Economic effects can be substantial

3. The effect are very different on a sector level if compared to the effects on a regional level. Agglomerations are not good for everybody!

9

RoadPricing: Research questions

1. How to determine the indirect economic effects of road pricing?- With respect to Agglomeration economies- Not with respect to safety or environmental issues

2. Where are the largest Indirect Cost and benefits due to agglomeration economies?

3. How large are these indirect economic effects due to agglomeration economies (see also lecture 1)?

4. What are the policy implications?

10

Welfare Theory: Benefits to users and owners infrastructure

Gen

eral

ised

cos

ts

# trips

Loss

transfer

Ch

arge

P

Pnew

QQnew

Demand

Supply

Supplynew

Traveltimegain

Road pricing

Gen

eral

ised

cos

ts

# trips

Gain

Traveltimegain InfrastructureP

Pnew

Q Qnew

Demand

Supply

Supplynew

Investment

Infrastructure Investment

Welfare

Generalized costs

Welfare

Generalized costs

11

Road pricing: Problem: Indirect Effect of Transfer in SCGE

• Determine General Indirect Effect Multiplier (SCGE)- Total effects divided by direct effects (change in

generalised costs) due to accessibility changes (Lecture 1)

• Determine Direct Effect (demand curve) and change in Generalized Costs (travel time and distance)- Transfer is included in direct effect !- Change in generalized costs represents accessibility change

• Determine Indirect effect- Multiplier times change in generalised costs

• Determine total effect

Propose a four Step Approach:

12

The Netherlands (2020): Generalized costs change due to Congestion Charge on congested roads.

Commute: Large & Positive Freight: Small & Negative(Results not discussed)

13

Indirect effects Commuting Multiplier

• Mainly within Regions- labour remains in region

• Negative effects– Pushing labour out of agglomeration:

Wasteful commuting

A

RU

• Strong agglomeration economies in “Randstad”– Amsterdam– Rotterdam– Utrecht

14

Direct benefit and generalised costs Commute:Related and both are positive

Direct Benefit Change Generalised costs

15

Indirect benefits

• On relations sign opposite from direct benefit

• Positive when agglomeration augmenting; negative when dispersion augmenting- Negative Intra-Corop effect

• Complex in a polycentric economy- Positive and negative indirect

Inter-Corop effects

16

Welfare effects of a congestion charge: Indirect versus direct benefits

  Freight Commute

Direct welfare effect travel time gain 104 141

Direct welfare effect quantity change 0 -6

Totaal direct welfare effect 104 135

Indirect intra-region welfare effect -2 -44

Indirect intra-region welfare effect 3 85

Total indirect welfare effect 1 41

• Indirect effects are substantial

• Can be positive or negative depending on whether they are agglomeration or dispersion augmenting

• Congestion charging has also negative indirect effects (intra versus inter corop)

17

Conclusions

1. Indirect effects are small for freight

2. Congestion charging can have negative indirect effect if it is dispersion augmenting

3. The negative effects are especially strong for commuting in congested areas

4. Policy: In those cases that congestion charging has negative indirect effects new infrastructure may be preferred