SCALE ECONOMIES ANALYSIS FOR URBAN HIGHWAY NETWORKS

Extending scale economies analysis from an individual highway to an urban highway network leads to an interesting new problem. When demand increases in a network, establishing a new long run equilibrium may require either increasing the capacities of existing links or adding new links (e.g., new roads, interchanges, overpasses). This paper develops a theoretical framework for analyzing economies of scale in this setting and then uses that framework to obtain a pseudo-empirical estimate of returns to scale. The results suggest that mild scale economies exist in urban highway travel.