Social cost-benefit analysis and spatial-economic models in the Netherlands

After the appearance of the so-called OEI-guide on social cost-benefit analysis (Eijgenraam et al. 2000), performing a cost-benefit analysis (CBA) has become an obligatory step in the decision-making process on all national transport infrastructure investments in the Netherlands. Like the comparable UK report (SACTRA, 1999), the OEI-guide advocates to seriously consider the question whether or not the indirect economic effects of improving transport infrastructure represent additional welfare effects on top of the direct transport effects (time and cost savings) and the direct external effects (emissions, noise, etc.). Of course, social cost-benefit analysis is not only relevant for infrastructure policy. It is also a useful evaluation tool for all other types of spatial policy, such as physical planning, housing policy, environmental policy and spatial economic policy. The core complication in all cases is that the direct cost and benefits of any policy are passed on through markets to parties that are not directly affected by the policy measures at hand. This generates two major analytical complications. First, during this process cost and benefits may increase or decrease in size, due to economies of scale and all kind of market imperfections. Second, during that process cost and benefits may be passed on or flown in across regional or national borders. Thus, the net total regional or net total national welfare effect may well be smaller or larger than the direct net effect for the region or nation at hand. Obviously, the only way to handle these complications in a systematic manner, without running the risk of double counting or undercounting additional welfare effects, is by means of spatial economic modelling. In this contribution we discuss this issue at two levels. First, we discuss the essence of social CBA as a policy evaluation tool, and indicate the nature of the complication on different markets. In doing so, we use transport infrastructure as an example and discuss the land market in somewhat more detail. Second, we give an overview of whether and how well