Essays on the Value of Local Public Goods

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This dissertation consists of three chapters studying the effects of public goods and public infrastructure investments on urban growth and local government finances. The first chapter estimates, first, how local governments finance federal mandates and, second, how much value local residents place on mandated local spending using a change in federal rules on municipal infrastructure following the 1972 Clean Water Act (CWA). I leverage the role of river networks in distributing pollutants across cities, combined with pre-CWA state regulatory intensity, to account for the endogeneity of municipal infrastructure adoption decisions, and to predict ex ante compliance with the CWA infrastructure mandate. Cities that were under the burden of compliance experienced substantial improvements to local ambient water quality as well as a three-fold increase in resident fees. Public spending on non-mandated items did not change, indicating that mandates are unlikely to displace local funding of other goods and services. The simultaneous increases to water quality and local costs resulted in taste-based sorting. However, I find that resident value of the mandated infrastructure depends upon the complementarity of surface water quality to pre-existing local features, as well as exposure to upstream polluters. These results imply that mandates may reduce inefficiencies to local public goods provision and provide positive benefits that are valued no less than their costs to local residents. The second chapter, joint with Matthew E. Kahn and Shanjun Li, considers the efficiency of local public service provision. A key challenge in quantifying the efficiency of the public sector stems from limited “apples to apples” comparisons of service functions offered by both public and private sectors, as well as the high correlation between local demand, demographic composition, and the local government’s ability to deliver quality services. This paper posits a solution to this empirical challenge in two ways. First, we focus on public bus transit which is a relatively undifferentiated service across US municipalities. Second, we apply a regression discontinuity design using local mayoral elections as a source of random variation that predicts privatization levels in order to estimate causal effects of privatization on service efficiency. We find that privately operated firms provide bus transit at significantly lower costs per mile, largely due to their ability to circumvent public sector unions. We estimate that privatizing bus transit - a service used disproportionately by lower income groups - would lower the average bus fare by $1 per trip and create over 26,000 bus operator jobs nationally. However, these cost savings do not necessarily outweigh benefits of providing high-paying public sector employment opportunities. The third chapter, joint with Panle Barwick, Shanjun Li, and Jing Wu, applies predictions of the Alonso-Muth-Mills model of urban land use to the context of Beijing’s 2008 road rationing policy to identify how such policy instruments impact the spatial distribution of wealth within cities. We find that Beijing's rationing policy significantly increased the demand for housing near subway stations as well as central business districts. Further, we find the composition of individuals living proximate to subway stations as well as proximate to Beijing's central business districts shifted toward wealthier households. Our findings are consistent with theoretical predictions of the monocentric city model with income-stratified transit modes. These results provide suggestive evidence that city-wide road rationing policies can have the unintended consequence of limiting access to public transit for lower income individuals.

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water quality; Infrastructure; Economics; Environmental economics; federal mandate; local public good; public transit; regression discontinuity
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Li, Shanjun
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Lovenheim, Michael F.
Brooks, Nancy
Sanders, Nicholas James
Degree Discipline
Applied Economics and Management
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Ph.D., Applied Economics and Management
Degree Level
Doctor of Philosophy
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Government Document
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dissertation or thesis
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