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Lecture 1: 11.15 – 12.45 July 4, 2007 Dimetic workshop Pécs, Hungary

NETHERLANDS INSTITUTE FOR SPATIAL RESEARCH. Modeling the spatial pattern of economic activities in the New Economic Geography II Mark Thissen. Lecture 1: 11.15 – 12.45 July 4, 2007 Dimetic workshop Pécs, Hungary. Contents. Case 2: The case of terrorism

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Lecture 1: 11.15 – 12.45 July 4, 2007 Dimetic workshop Pécs, Hungary

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  1. NETHERLANDS INSTITUTE FOR SPATIAL RESEARCH Modeling the spatial pattern of economic activities in the New Economic Geography II Mark Thissen Lecture 1: 11.15 – 12.45 July 4, 2007 Dimetic workshop Pécs, Hungary

  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 • Maximum Costs: • Rebuilding Bridge • Temporary misallocation • Permanent prevention policy change • Analysis: short run model without migration • 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 • Rebuild the Bridge! • Economic effects can be substantial • 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 • How to determine the indirect economic effects of road pricing? • With respect to Agglomeration economies • Not with respect to safety or environmental issues • Where are the largest Indirect Cost and benefits due to agglomeration economies? • How large are these indirect economic effects due to agglomeration economies (see also lecture 1)? • What are the policy implications?

  10. Welfare Theory: Benefits to users and owners infrastructure Welfare Generalized costs Welfare Generalized costs Road pricing Infrastructure Investment

  11. Road pricing: Problem: Indirect Effect of Transfer in SCGE Propose a four Step Approach: • 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

  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 A U R • Strong agglomeration economies in “Randstad” • Amsterdam • Rotterdam • Utrecht • Mainly within Regions • - labour remains in region • Negative effects • Pushing labour out of agglomeration: Wasteful commuting

  14. Direct benefit and generalised costs Commute: Related and both are positive Direct Benefit Change Generalised costs

  15. Indirect benefits • Positive when agglomeration augmenting; negative when dispersion augmenting • Negative Intra-Corop effect • Complex in a polycentric economy • - Positive and negative indirect Inter-Corop effects • On relations sign opposite from direct benefit

  16. Welfare effects of a congestion charge: Indirect versus direct benefits • 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 • Indirect effects are small for freight • Congestion charging can have negative indirect effect if it is dispersion augmenting • The negative effects are especially strong for commuting in congested areas • Policy: In those cases that congestion charging has negative indirect effects new infrastructure may be preferred

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