The usual practice in transportation project evaluation is to
estimate the direct benefits and costs to transportation users (such
as travel time savings, operating costs, and accident reduction) and
to nonusers (such as reductions in greenhouse gas emissions), and
to ignore the indirect impacts caused by general equilibrium
repercussions (such as higher property values and regional produc-
tion). It is widely known that such an approach cannot be justified
if price distortions exist (Venables and Gasiorek, 1999; Kanemoto,
2011; Jara-Diaz, 2007). The sources of price distortions are diverse:
taxes and subsidies, imperfect competition, and unpriced conges-
tion. Recent advances in new economic geography (NEG) show that
urban agglomeration economies reflect price distortions of various
forms. In an excellent review article, Duranton and Puga (2004)
classified the sources of agglomeration into three types: sharing,
matching, and learning. Virtually all of them—for example, sharing
of gains from variety and specialization, matching between
employers and employees, and knowledge generation and
diffusion—are associated with non-negligible price distortions.