The provision of infrastructure: benefit–cost criteria for optimizing local governments

  • T. Daniel WoodburyEmail author


This paper models the provision of a local public good that is simultaneously utilized as a public consumption good and a public intermediate good. Since the public good enters both utility and production functions, it is considered a “generalized public good.” This is done to model the provision of infrastructure by sub-federal governments, which is financed with taxes on local residents. Households are mobile in the model, and the theoretical analysis provides a benefit–cost rule for public good provision by a rent-maximizing local government. Illustrative calculations of the marginal cost of public funds are provided, and they show a wide range of values matching previous estimates of the marginal productivity of infrastructure. The impact of intergovernmental transfers on the provision of infrastructure by rent-maximizing local governments is presented.


Public goods Public inputs Infrastructure Cost–benefit analysis Fiscal federalism 

JEL Classification

H40 H70 R50 



This paper draws from Chapter II of my dissertation. I wish to thank Dr. David Wildasin for many helpful discussions and the other members of my thesis committee for their comments. I am also grateful to the editor and anonymous referees for their helpful comments. I am solely responsible for any errors.


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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Young Harris CollegeYoung HarrisUSA

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