Public Infrastructure, Private Investment and Residential Property Values: Experimental Evidence from Street Pavement

We design an infrastructure experiment in Mexico to evaluate the impact of street pavement on residential property values and private residential investment. We find that the provision of street pavement increases housing values by 21-25% according to homeowners, and 14-15% according to professional appraisals. Private investment responded too: Households on paved streets invest more in housing improvements than do those in the control group. A simple model allows us to test for the absence of complementarities between public and private investment in the production of housing. Since our non-complementarity tests do not reject, we conclude that the increase in private investment is due to a wealth effect. Finally, we estimate the magnitude of spillover effects to streets that did not get paved and use our estimates to provide a cost-benefit analysis of public investments in street pavement. ∗50 University Hall, MC 7360 Berkeley, CA 94720. Email: [email protected] †Departament de Fonaments de l’Anàlisi Econòmica, Universitat d’Alacant, Sant Vicent del Raspeig, 03690 Alacant, Spain. Email: [email protected]