InfrastructureMaking Infrastructure Pay Off
James M. Poterba, an MIT economist, advocates for cost-benefit analyses of projects, finds that repairing infrastructure often pays off more than new projects, and suggests that infrastructure user fees be considered as a source of financing for projects. He argues that the value in repairs, upgrades, and user fees to help fund projects has been overlooked.
With a timeframe resembling that of a construction project, the U.S. Congress is working on an infrastructure bill. How effective could the legislation be? In a new paper, James M. Poterba, the Mitsui Professor of Economics at MIT, and co-author Edward Glaeser, an economist at Harvard University, survey economic aspects of infrastructure investment in the U.S. They advocate for cost-benefit analyses of projects, find that repairing infrastructure often pays off more than new projects, and suggest that infrastructure user fees be considered as a source of financing for projects.
The paper, “Economic Perspectives on Infrastructure Investment,” is being published by the Aspen Institute Economic Strategy Group. Poterba, an expert on taxation and government spending, among other topics, notes that many members of the MIT community, especially civil engineers and urban planners, have crucial expertise on the design and construction of infrastructure projects, but that economists can also make important contributions to the selection and scaling of such projects. MIT News’s Peter Dizikes talked with Poterba about his new analysis.
Peter Dizikes: Your paper suggests that infrastructure projects vary widely in value. In a country with many infrastructure needs, how can we systematically establish what our infrastructure priorities should be?
James Poterba: The economic touchstone for thinking about the infrastructure gap, and which projects should be undertaken, is a very standard tool: cost-benefit analysis. But it’s easier said than done. The benefits of a new bridge or subway line accrue over decades, so estimating them requires projecting utilization and demand far into the future. There are also important network considerations. In Seattle, where there are few connections between some parts of the city and others, one bridge can be very valuable because it establishes new links among areas, while building a duplicative bridge has less value.
At the same time, costs are hard to forecast, especially in areas where infrastructure has the greatest potential benefit and is the most expensive. Despite these challenges, our best hope for avoiding bridges to nowhere, and understanding the differences among projects, is trying to discipline ourselves with cost-benefit analysis.
