| Abstract: | Because an expansion of roads will shift the demand curves for interdependent roads, it may appear difficult to determine the consumer surplus generated by road projects. An extensive literature discusses different measures of consumer surplus, and the conditions under which the different measures give consistent answers. Little attention, however, has been given to a more fundamental problem: under what conditions does consumer surplus measure the benefits of an investment. We discuss both these issues, and explain the close relationship between the conditions guaranteeing the uniqueness of a measure of consumer welfare, and its usefulness in evaluating road projects. No uniqueness problem arises if different roads connect the same origin and destination; consumer surplus can then be measured by use of an aggregate demand curve. |
