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Economic Analysis and Infrastructure Investment

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  • 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.
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Suggested Citation

  • Edward L. Glaeser & James M. Poterba, 2021. "Economic Analysis and Infrastructure Investment," NBER Books, National Bureau of Economic Research, Inc, number glae-6.
    • Handle: RePEc:nbr:nberbk:glae-6
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    Cited by:

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    2. Grover,Arti Goswami & Lall,Somik V. & Timmis,Jonathan David, 2021. "Agglomeration Economies in Developing Countries : A Meta-Analysis," Policy Research Working Paper Series 9730, The World Bank.
    3. Gallen, Trevor S. & Winston, Clifford, 2021. "Transportation capital and its effects on the U.S. economy: A general equilibrium approach," Journal of Macroeconomics, Elsevier, vol. 69(C).
    4. Beach, Brian, 2022. "Water infrastructure and health in U.S. cities," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    5. James Alm & Trey Dronyk‐Trosper, 2021. "What drives road infrastructure spending?," Public Budgeting & Finance, Wiley Blackwell, vol. 41(4), pages 20-49, December.
    6. Robert Kornfeld & Barbara M. Fraumeni, 2022. "How Should We Measure Infrastructure? The Case of Highways and Streets," BEA Working Papers 0196, Bureau of Economic Analysis.
    7. Kornfeld, Robert & Fraumeni, Barbara M., 2024. "How Should We Measure Infrastructure? The Case of Highways and Streets," IZA Discussion Papers 17156, Institute of Labor Economics (IZA).
    8. Catherine Wolfram & Edward Miguel & Eric Hsu & Susanna B. Berkouwer, 2023. "Donor Contracting Conditions and Public Procurement: Causal Evidence from Kenyan Electrification," NBER Working Papers 30948, National Bureau of Economic Research, Inc.

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    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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