Transport and land-use benefits under location externalities

Transport projects are economically assessed partly by estimating users' benefits in the transport system and by ignoring impacts on land use under the argument that these benefits are already incorporated into transport users' benefits. In this paper we discuss this argument from two main viewpoints: the level of percolation of transport benefits into land values and the presence of external economies in urban systems. We first propose and discuss measures of benefits in the transport system and in the land-use system. Then we analyse to what extent transport users' benefits percolate into land rents, showing empirical evidence that it may be limited. We then focus on the less-studied effect of three types of technological externalities: direct effects associated with traffic nuisance; location externalities, associated with economies of agglomeration of households and firms, which in some cities may be a dominant location choice factor; and land-use-transport interaction. We conclude by specifying in more detail the conditions under which the classical argument and current project appraisal methods are valid.