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Migration, congestion externalities, and the evaluation of spatial investments

  • Taryn Dinkelman
  • Sam Schulhofer-Wohl

Evaluations of new infrastructure in developing countries typically focus on direct effects, such as the impact of an electrification program on household energy use. But if new infrastructure induces people to move into an area, other local publicly provided goods may become congested, offsetting the benefit of the infrastructure. We use a simple model to show how to measure the net benefit of a place-based program without data on land prices—an indicator that is commonly used to measure congestion in developed countries but that often cannot be used in poor countries because land markets are missing or land prices are badly measured. Our model shows that congestion externalities are especially large when land markets are missing. To illustrate, we estimate the welfare impact of a recent household electrification program in South Africa. Congestion externalities from migration reduced local welfare gains by half.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 700.

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Date of creation: 2012
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Handle: RePEc:fip:fedmwp:700
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