The microeconomic effects of infrastructure: Experimental evidence from street pavement

We design an infrastructure experiment in Mexico to evaluate the impact of firsttime asphalting of inhabited residential streets on property values and household outcomes. We find substantial impacts on housing values (+16%) and land values (+54%). At the household level, street paving increased the use of collateral-based credit, and had strong effects on vehicle ownership (+43%), durable goods (+12%) and home improvements (+100%). We present a model to disentangle wealth effects from complementarities between vehicles and home improvements with street pavement. The results show that vehicles and street pavement are complementary goods, and are consistent with street pavement and home improvements being complements in the production of housing services. Finally, we provide a lower bound for the benefits of street pavement which represent 109% of the construction costs. ∗We would like to thank Anne Case, Angus Deaton, Alan Krueger, David Lee, Adriana Lleras-Muney, Christina Paxson, and Cecilia Rouse for their support and advice in this research project. The collaboration of the Acayucan 2005-2007 and 2008-2010 Municipal administrations is gratefully acknowledged. We also recognize the effort of José Luis Palma, Luz Uribe and Monica González at INSAD who were in charge of the survey, and José Luis Reyes who provided the house value assessments. We also thank Pierre-André Chiappori, Lucia Corno, Frederico Finan, Paul Gertler, Jeremy Magruder, Edward Miguel, and seminar participants at Berkeley, CEMFI, DIW-Berlin, Princeton, RAND, U.S. Treasury, ASSET Alicante, APPAM, BREAD-MIT, EEA-Glasgow, INSIDE-IAE, LILP-Quito, NEUDC-MIT, Pacific Development Conference, and World Bank Conference on Infrastructure and Development for helpful comments and suggestions. The data collected for this study underwent the approval process of the Institutional Review Panel at Princeton University (Research Protocol 3104). Financial aid and support from Princeton University, Princeton Woodrow Wilson Scholars, Princeton Industrial Relations Section, Princeton Research Program in Development Studies, Robert Wood Johnson Scholars in Health Policy Research Program, Berkeley Economics, Universitat d’Alacant, the Lincoln Institute of Land Policy and the Spanish Ministry of Science and Innovation (ECO 2008-05721/ECON) is gratefully acknowledged. Any errors contained in the paper are our own. Gonzalez-Navarro: [email protected]; Quintana-Domeque: [email protected]