The allocation of traffic between different transport modes follows transport user
decisions which depend on the generalized cost of travel in the available alternatives. High
Speed Rail (HSR) investment is a government decision with significant effects on the
generalized cost of rail transport; and therefore on the modal split in corridors where private
operators compete for traffic and charge prices close to total producer costs (infrastructure
included).
The rationale for HSR investment is not different to any other public investment decision.
Public funds should be allocated to this mode of transport if its net expected social benefit is
higher than in the next best alternative. The exam of data on costs and demand shows that
the case for investing in HSR is strongly dependent on the existing volume of traffic where
the new lines are built, the expected time savings and generated traffic and the average
willingness to pay of potential users, the release of capacity in congested roads, airports or
conventional rail lines and the net reduction of external effects.
This paper discusses, within a cost-benefit analysis framework, under which conditions
the expected benefits from deviated traffic (plus generated traffic), and other alleged external
effects and indirect benefits justify the investment in HSR projects. It pays special attention to
intermodal effects and pricing.
