Potholes to prosperity: A micro-macro framework for growth-oriented road infrastructure investment allocation

Road infrastructure reinvestment poses a fundamentally intertemporal policy problem, yet existing approaches either emphasize short-term budget efficiency or do not fully capture the dynamic and path-dependent evolution of infrastructure quality. This paper develops a proof-of-concept micro–macro framework that integrates empirically calibrated infrastructure asset management insights into a neoclassical dynamic general equilibrium model. In this framework, infrastructure quality evolves as an endogenized, dynamic state variable governed by an empirically derived level-of-investment to level-of-service relationship, through which public revenue allocation between new investment and reinvestment jointly determines the intertemporal evolution of effective public capital. Using Calgary's urban road network as a case study, the results show that optimal allocation that increases quality-improving reinvestment enhances effective public capital and generates sustained gains in output and welfare, even in the absence of infrastructure expansion. The transition analysis further shows that infrastructure quality and physical stock adjust at different rates from their inherited states, and their relative adjustment rates, in turn, shape the transition of effective public capital and the optimal allocation. By integrating these distinct infrastructure states within a common dynamic framework, the analysis provides a basis for jointly evaluating how inherited infrastructure conditions, relative productivity, and adjustment dynamics shape the long-run welfare effects of reinvestment and infrastructure expansion.