Optimal Transport Networks in Spatial Equilibrium

Abstract

We study optimal transport networks in spatial equilibrium. We develop a framework con-sisting of a neoclassical trade model with labor mobility in which locations are arranged on agraph. Goods must be shipped through linked locations, and transport costs depend on con-gestion and on the infrastructure in each link, giving rise to an optimal transport problem ingeneral equilibrium. The optimal transport network is the solution to a social planner’s problemof building infrastructure in each link. We provide conditions such that this problem is globallyconvex, guaranteeing its numerical tractability. We also study cases with increasing returns totransport technologies in which global convexity fails. We apply the framework to assess optimalinvestments and inefficiencies in observed road networks in 25 European countries. The counter-factuals suggest larger gains from road network expansion and larger losses from misallocationof current roads in lower-income countries. With Pablo D. Fajgelbaum