Infrastructure in American cities: A theoretical and empirical examination

Infrastructure and its contribution to welfare has been the subject of considerable recent debate in both policy and academic circles. In this study, I examine in detail two issues that are crucial to this debate, yet have received relatively little attention: how to measure the benefits of infrastructure and how the decision to invest in infrastructure is made. The study addresses the former question by providing a synthesis of two models of which have traditionally been used to examine the effects of local attributes, including fiscal attributes and infrastructure, on local economies. The simple general equilibrium framework incorporates elements of each. Any attempt to determine whether the nation's infrastructure stocks are sufficient to service the needs of a growing economy and population must begin with a clear notion of how to measure the benefits of public investment. Section two concentrates on the efficiency of local infrastructure spending and the factors affecting it, and examines the implications of landowners' affinity for long run spending. It combines the results of section one with the political-economic considerations presented in Chapter 3 to provide insight into the efficiency of local public capital stocks and the factors affecting their formation. The results indicate that while local policy makers appear at first glance to have followed the signals provided by private markets in making their investment decisions, more careful analysis indicates that politics, not economic efficiency, is the driving force behind budget allocations. This finding may surprise few, but should serve as a warning to those who disregard the links between homeownership and the policy process.