Office of Operations Freight Management and Operations

1. Introduction

This study develops the micro-economic framework within which to measure the freight-related economic benefits and costs of transportation improvements. A key objective is to ensure that the Benefit-Cost Analysis framework recognizes the gains in economic welfare (efficiency) that follow from the propensity of industry to adopt productivity-enhancing "advanced logistics" in response to transportation infrastructure improvements. Whether the conventional Benefit-Cost Analysis framework already recognizes these so-called "reorganization" effects has been debated for some time. This paper seeks to put the matter to rest.

This technical paper is presented in five sections. Section 2 gives an overview of industrial organization in relation to freight logistics. Section 3 outlines previous efforts to expand the micro-economic foundations of Benefit-Cost Analysis so as to capture the effects of industry reorganization. Section 4 builds on past efforts to develop the complete framework. Section 5 concludes with a discussion of related measurement issues and information requirements.

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