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Infrastructure, Incentives and Institutions

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  • Glaeser, Edward
  • Ashraf, Nava
  • Ponzetto, Giacomo

Abstract

Cities generate negative, as well as positive, externalities; addressing those externalities requires both infrastructure and institutions. Providing clean water and removing refuse requires water and sewer pipes, but the urban poor are often unwilling to pay for the costs of that piping. Standard welfare economics teaches us that either subsidies or Pigouvian fines can solve that problem, but both solution are problematic when institutions are weak. Subsidies lead to waste and corruption; fines lead to extortion of the innocent. Zambia has attempted to solve its problem with subsidies alone, but the subsidies have been too small to solve the ?last-mile problem? and so most poor households remain unconnected to the water and sewer system. In nineteenth-century New York, subsidies also proved insufficient and were largely replaced by a penalty-based system. We present a model that illustrates the complementarity between infrastructure and institutions and provides conditions for whether fines, subsidies or a combination of both are the optimal response. One point of the model is that the optimal fine is often not a draconian penalty, but a mild charge that is small enough to avoid extortion.

Suggested Citation

  • Glaeser, Edward & Ashraf, Nava & Ponzetto, Giacomo, 2016. "Infrastructure, Incentives and Institutions," CEPR Discussion Papers 11072, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11072
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    Cited by:

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    2. Jedwab, Remi & Khan, Amjad M. & Russ, Jason & Zaveri, Esha D., 2021. "Epidemics, pandemics, and social conflict: Lessons from the past and possible scenarios for COVID-19," World Development, Elsevier, vol. 147(C).
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    5. Nava Ashraf & Edward Glaeser & Abraham Holland & Bryce Millett Steinberg, 2021. "Water, Health and Wealth: The Impact of Piped Water Outages on Disease Prevalence and Financial Transactions in Zambia," Economica, London School of Economics and Political Science, vol. 88(351), pages 755-781, July.
    6. Kresch, Evan Plous & Walker, Mark & Best, Michael Carlos & Gerard, François & Naritomi, Joana, 2023. "Sanitation and property tax compliance: Analyzing the social contract in Brazil," Journal of Development Economics, Elsevier, vol. 160(C).
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    9. Evan Plous Kresch, 2020. "The Buck Stops Where? Federalism, Uncertainty, and Investment in the Brazilian Water and Sanitation Sector," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 374-401, August.
    10. Daniel S. Grossman & Brad R. Humphreys & Jane E. Ruseski, 2019. "Out of the outhouse: The impact of place‐based policies on dwelling characteristics in Appalachia," Journal of Regional Science, Wiley Blackwell, vol. 59(1), pages 5-28, January.
    11. Vaidehi Tandel & Sahil Gandhi & Shaonlee Patranabis & Luís M. A. Bettencourt & Anup Malani, 2022. "Infrastructure, enforcement, and COVID‐19 in Mumbai slums: A first look," Journal of Regional Science, Wiley Blackwell, vol. 62(3), pages 645-669, June.
    12. Aidan Coville & Sebastian Galiani & Paul Gertler & Susumu Yoshida, 2020. "Financing Municipal Water and Sanitation Services in Nairobi’s Informal Settlements," NBER Working Papers 27569, National Bureau of Economic Research, Inc.
    13. Ding, Haoyuan & Qin, Cong & Shi, Kang, 2018. "Development through electrification: Evidence from rural China," China Economic Review, Elsevier, vol. 50(C), pages 313-328.
    14. Edward L. Glaeser & Wentao Xiong, 2017. "Urban Productivity in the Developing World," NBER Working Papers 23279, National Bureau of Economic Research, Inc.
    15. Bennett, Daniel L. & Faria, Hugo J. & Gwartney, James D. & Morales, Daniel R., 2017. "Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective," World Development, Elsevier, vol. 96(C), pages 503-519.
    16. Rama,Martin G. & Li,Yue, 2022. "Private Cities : Implications for Urban Policy in Developing Countries," Policy Research Working Paper Series 9936, The World Bank.
    17. Antonio Estache, 2016. "Institutions for Infrastructure in Developing Countries: What We Know and the Lot We still Need to Know," Working Papers ECARES ECARES 2016-27, ULB -- Universite Libre de Bruxelles.
    18. Yating Ru & Beliyou Haile & John I. Carruthers, 2022. "Urbanization and child growth failure in Sub-Saharan Africa: a geographical analysis," Journal of Geographical Systems, Springer, vol. 24(3), pages 441-473, July.
    19. Glaeser, Edward & Henderson, J. Vernon, 2017. "Urban economics for the developing World: An introduction," Journal of Urban Economics, Elsevier, vol. 98(C), pages 1-5.
    20. Edward L. Glaeser, 2020. "Urbanization and Its Discontents," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 46(2), pages 191-218, April.
    21. Evelyn Muleba Kunda-Ngándu & Masuzyo Chirwa-Chobe & Chanda Mwamba & Jenala Chipungu & Esnart Ng’andu & Hope Mwanyungwi Chinganya & Michelo Simuyandi & Roma Chilengi & Anjali Sharma, 2021. "Exploring willingness to participate in future Human Infection Studies in Lusaka, Zambia: A nested qualitative exploratory study," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-18, July.

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    More about this item

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • N91 - Economic History - - Regional and Urban History - - - U.S.; Canada: Pre-1913

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