3.13 Instituto de Economía

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Geography, disasters, and optimal transport networks
(2022) Correa Gana, Pedro José; Zurita Lillo, Felipe; Silva M., Hugo; Pontificia Universidad Católica de Chile. Instituto de Economía
I study how transport network infrastructures should be allocated in economies where unexpected events diminish the network functionality. I develop a trade model with locations arranged to a graph, where goods are shipped through the transport network, and the trading cost endogenously depends on congestion produced by the available infrastructure and the number of goods transported. Each link in the road network has a certain probability of suffering the loss of a share of its capacity. The optimal network is the solution to a central planner's problem of maximizing the expected value of the consumer's welfare. I found that a disaster mainly affects the location that is isolated, but some non-isolated locations benefit. Also, the optimal road network reduces the expected welfare inequality between shocked and non-shocked regions. Finally, my simulations suggest that an efficient tax policy for shipping can reduce the necessity for a more significant alternative road to connect the isolated areas.