Cost economies, urban patterns and population density: The case of public infrastructure for basic utilities

Determination of optimal population densities underlies the economic rationality when planning the provision of basic public infrastructure by local governments. Using econometric techniques based on the translog cost function, we investigate the existence of economies of scale, associated to a larger urban size in terms of population and housing, determine the effect of alternative urban patterns – compact or dispersed – on the cost of provision, and calculate optimal population densities as targets for urban planning. We illustrate the practicality of our model using Spanish municipal data, and unveil latent economies of scale and suboptimal urban densities due to excessive dispersion. Based on these findings we propose specific policy guidelines in terms of desirable urban structures.