On the measurement of benefits in an urban context: Some general equilibrium issues

Abstract

The validity of using local market data to measure the benefits associated with policies adopted in an urban area is investigated. It is shown that the rest of the world is affected by taxing decisions undertaken in a single urban area, so that local data cannot perfectly measure the welfare effects of a policy change. Specifically, the fact that the willingness to pay for a tax increase is positive in the rest of the world suggests that cost-benefit analyses which do not account for the rest of the world may be biased.