For all the money spent on urban public infrastructure, most evaluation tools are inadequate for determining what constitutes a good investment. A new Upjohn Institute working paper finds the standard model of assessing benefits of infrastructure by looking at the effects on wages and housing values provides too narrow a picture.
David Albouy and Arash Farahani give a better sense of the value of these investments by considering housing and other nontraded production—federal taxes and population changes. This more than doubles the value of public infrastructure compared to earlier estimates.
Albouy and Farahani’s work recasts the cost-benefit test established by earlier research, which found that a typical investment returns only 30 to 60 percent of its cost. Their broader evaluation sets that range at 70 to 135 percent, with much of the difference due to quality of life improvements.
Download Valuing Public Goods More Generally: The Case of Infrastructure by David Albouy and Arash Farhani.