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Publications
Publications
  • 2016
  • Working Paper

Infrastructure, Incentives and Institutions

By: Nava Ashraf, Edward L. Glaeser and Giacomo A.M. Ponzetto
  • Format:Print
  • | Language:English
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Abstract

Cities generate negative, as well as positive, externalities; addressing those externalities requires both infrastructure and institutions. Providing clean water and removing refuse requires water and sewer pipes, but the urban poor are often unwilling to pay for the costs of that piping. Standard welfare economics teaches us that either subsidies or Pigouvian fines can solve that problem, but both solutions are problematic when institutions are weak. Subsidies lead to waste and corruption; fines lead to extortion of the innocent. Zambia has attempted to solve its problem with subsidies alone, but the subsidies have been too small to solve the “last-mile problem,” and so most poor households remain unconnected to the water and sewer system. In nineteenth-century New York, subsidies also proved insufficient and were largely replaced by a penalty-based system. We present a model that illustrates the complementarity between infrastructure and institutions and provides conditions for whether fines, subsidies, or a combination of both are the optimal response. One point of the model is that the optimal fine is often not a draconian penalty but a mild charge that is small enough to avoid extortion.

Keywords

Motivation and Incentives; Urban Development; Organizations; City; Infrastructure; Zambia

Citation

Ashraf, Nava, Edward L. Glaeser, and Giacomo A.M. Ponzetto. "Infrastructure, Incentives and Institutions." NBER Working Paper Series, No. 21910, January 2016.
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More from the Authors

    • 2016
    • Faculty Research

    Evaluating the Effects of Large Scale Health Interventions in Developing Countries: The Zambian Malaria Initiative

    By: Nava Ashraf, Gunther Fink and David N. Weil
    • Review of Economics and Statistics

    Savings in Transnational Households: A Field Experiment Among Migrants from El Salvador

    By: Nava Ashraf, Diego Aycinena, Claudia Martinez A. and Dean Yang
    • December 2014
    • Journal of Public Economics

    No Margin, No Mission? A Field Experiment on Incentives for Public Services Delivery

    By: Nava Ashraf, Oriana Bandiera and B. Kelsey Jack
More from the Authors
  • Evaluating the Effects of Large Scale Health Interventions in Developing Countries: The Zambian Malaria Initiative By: Nava Ashraf, Gunther Fink and David N. Weil
  • Savings in Transnational Households: A Field Experiment Among Migrants from El Salvador By: Nava Ashraf, Diego Aycinena, Claudia Martinez A. and Dean Yang
  • No Margin, No Mission? A Field Experiment on Incentives for Public Services Delivery By: Nava Ashraf, Oriana Bandiera and B. Kelsey Jack
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