Evaluating Durable Public Good Provision using Housing Prices
AbstractRecent empirical work in public finance uses the housing price response to public investments to assess the efficiency of local durable public good provision. This paper investigates the theoretical foundations for this technique. In the context of a novel theoretical model developed to study the issue, it shows that there is little justification for the technique if citizens have rational expectations concerning future investment in their communities. An example in which investment is chosen by a budget-maximizing bureaucrat is developed to show why the technique can falsely predict under-provision. The technique is valid, however, when citizens have adaptive expectations, believing that whatever provision level that currently prevails will be maintained indefinitely.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18767.
Date of creation: Feb 2013
Date of revision:
Note: PE POL
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Find related papers by JEL classification:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
- H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-08 (All new papers)
- NEP-PUB-2013-02-08 (Public Finance)
- NEP-URE-2013-02-08 (Urban & Real Estate Economics)
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