An analytical framework for evaluating transition impact of infrastructure projects

This paper provides a non-technical summary of a framework for evaluating the transition impact (social returns) of any infrastructure investment that reduces transaction costs and thereby intensifies product market competition. The framework applies both to physical and institutional infrastructure. We show that infrastructure generates welfare gains by improving the ability of the market to weed out existing inefficient firms ("market selection"), by changing the incentives for firms to lower their costs by restructuring, and by providing greater (less) incentives to enter for low (high) cost potential entrants. We illustrate by simulation analysis that conventional cost-benefit analysis is not likely to capture these dynamic transition impacts of infrastructure.