Infrastructure, Incentives, and Institutions
American Economic Review
vol. 106,
no. 5, May 2016
(pp. 77-82)
Abstract
Expensive infrastructure is ineffective if it doesn't travel the last mile. In nineteenth-century New York and modern Africa, disease has spread when urbanites chose not to use newly built sanitation infrastructure to save money. Either subsidies or Pigouvian fines can internalize the externalities that occur when people don't use sanitation infrastructure, but with weak institutions subsidies generate waste and fines lead to extortion. Our model illustrates the complementarity between infrastructure and institutions and shows how institutional weaknesses determine whether fines, subsidies, both or neither are optimal. Contrary to Becker (1968), the optimal fine is often mild to reduce extortion.Citation
Ashraf, Nava, Edward L. Glaeser, and Giacomo A. M. Ponzetto. 2016. "Infrastructure, Incentives, and Institutions." American Economic Review, 106 (5): 77-82. DOI: 10.1257/aer.p20161095Additional Materials
JEL Classification
- H54 National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
- H76 State and Local Government: Other Expenditure Categories
- I15 Health and Economic Development
- I18 Health: Government Policy; Regulation; Public Health
- N91 Regional and Urban History: U.S.; Canada: Pre-1913
- Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- R53 Public Facility Location Analysis; Public Investment and Capital Stock