Thoughts on economics and liberty

Towards a theory of infrastructure – what is infrastructure and who should pay for it

This has been a vexed issue that’s beset by close to utter confusion in the economics literature.

I wrote about this issue here last year but I’m unable to locate any consistent first-principles approach to this question.

The issue of infrastructure is closely inter-related to town planning and zoning. Unpacking the matter is now becoming important since town planning has failed in the West and there has been a chronic under-supply of infrastructure.

My FB comment:

The reason government was given the task of supplying public goods such as infrastructure is that private sector ownership may lead to an undersupply.

But because the government doesn’t charge like a perfectly discriminating monopolist, the problem of undersuppy has not been resolved.

In addition, we now have the various inefficiencies associated with government supply. It is therefore unclear whether society has become better off in this process.

I’ve also been exploring this issue here: Optimal taxation, levies, fees and charges.


It argues:

The costs of infrastructure are met in different amounts by the public, the indirect beneficiaries of new infrastructure and other users. Establishing what infrastructure costs fall into the domains of each funder group should be the first step in negotiating a fair mix:
• State Government: for enabling ‘State’ infrastructure for a public good (via consolidated revenue)
• Local Government: for enabling ‘local’ infrastructure delivering a public good (via rates)
• Land owners / developers whose proposed development gives rise to – or benefits from:
− uplift in land value – and increased future development prospects as a result of the provision of new infrastructure capacity
− related State and local infrastructure needs (via state development contributions and local infrastructure contributions)
− an impact that requires mitigation (via conditions of consent, offsets and development contributions)
• Other users via user charging (via eg tolls, parking fees, access fees)

As part of this exercise I’ll make some notes here and hope that I can find some existing literature to assist the analysis. I’ve downloaded a lot of papers on this topic and will try to highlight the good ones if time permits.

This is a placeholder post and I’ll update as time permits.


Fixing American Infrastructure

Who Should Pay for Infrastructure?

Sanjeev Sabhlok

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