Working Paper: NBER ID: w28215
Authors: Edward L. Glaeser; James M. Poterba
Abstract: This paper summarizes economic research on investment in public infrastructure and introduces the findings of several new studies on this topic. It begins with a review of several potential justifications for the public sector’s involvement in building, financing, and operating infrastructure, including limitations of private capital markets, externalities, and the control of natural monopolies. It then describes the conditions that characterize an optimal infrastructure investment program, emphasizing the need to extend project-based microeconomic cost-benefit analysis to incorporate the value of economy-wide macroeconomic and other externalities. It notes the importance of efficient use of infrastructure capital, and discusses three areas -- procurement, project management, and expenditure on externality mitigation – where further research could identify paths to efficiency improvement. It concludes by identifying several trends that have emerged since outbreak of the COVID-19 pandemic that may have long-term effects on the role of both physical and digital infrastructure in the U.S. economy.
Keywords: infrastructure; public investment; economic research; externalities; macroeconomic benefits
JEL Codes: H44; H76; R42; R53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Limited private capital markets (G19) | Public sector investment (H54) |
| Infrastructure generates positive externalities (H54) | Public sector provides infrastructure (H54) |
| Monopolistic conditions (D42) | Public ownership and operation of infrastructure (H54) |
| Failure to integrate macroeconomic externalities into microeconomic cost-benefit analyses (D62) | Suboptimal infrastructure investment decisions (H54) |