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Evaluating Durable Public Good Provision using Housing Prices

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  • Stephen Coate

Abstract

Recent empirical work in public finance uses the housing price response to public investments to assess the efficiency of local durable public good provision. This paper investigates the theoretical foundations for this technique. In the context of a novel theoretical model developed to study the issue, it shows that there is little justification for the technique if citizens have rational expectations concerning future investment in their communities. An example in which investment is chosen by a budget-maximizing bureaucrat is developed to show why the technique can falsely predict under-provision. The technique is valid, however, when citizens have adaptive expectations, believing that whatever provision level that currently prevails will be maintained indefinitely.

Suggested Citation

  • Stephen Coate, 2013. "Evaluating Durable Public Good Provision using Housing Prices," NBER Working Papers 18767, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18767
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    References listed on IDEAS

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    Cited by:

    1. Ronan Lyons, 2012. "Search costs, sorting and “property ladder†effects: Evidence from the valuation of amenities," ERSA conference papers ersa12p511, European Regional Science Association.
    2. repec:tcd:tcduee:tep051 is not listed on IDEAS
    3. Lang, Corey, 2018. "Assessing the efficiency of local open space provision," Journal of Public Economics, Elsevier, vol. 158(C), pages 12-24.
    4. Barseghyan, Levon & Coate, Stephen, 2014. "Bureaucrats, voters, and public investment," Journal of Public Economics, Elsevier, vol. 119(C), pages 35-48.

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    More about this item

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare

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