Investing in Infrastructure
Paper Session
Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)
- Chair: James Poterba, Massachusetts Institute of Technology
Infrastructure Inequality
Abstract
Which Americans experience the worst infrastructure and what are the costs of living with that infrastructure? We measure road roughness throughout America using vertical acceleration data from millions of Uber rides across thousands of American roads. Our measure correlates strongly with other measures of road roughness where they are available, and with outcomes such as driver speed. We use a simple model to quantify the overall costs of roughness based on how driver speed responds to changes in road roughness. We estimate the treatment effects of road roughness on speeds using road repaving events in Chicago, and discontinuous jumps in road roughness at town borders in almost 3,000 towns across the US. These estimates suggest that the roughness of the median road in the US generates welfare losses of 0.17 USD per driver-mile, which is 27% of the time cost ignoring roughness. Roads are much worse in dense, coastal areas, and in poorer towns and neighborhoods. Comparing towns, we find that a jump from 0 to 100 percent African-American corresponds to a welfare loss of .20 USD per driver-mile due to worse roads. For the city of Chicago, we find little correlation between measured road roughness and subsequent road repaving, suggesting that there may be welfare gains from better targeted road care.The Shifting Finance of Electricity Generation
Abstract
While large regulated incumbents in the energy industry face positive incentives to create new energy-generating assets, we find that market deregulation and capital from the private equity industry and from foreign investors have played an outsize role in the adoption of new technologies. Over the 2005--2020 period, domestic publicly listed corporations reduced their ownership of U.S. electric power from 71% to 54% of total generation. Private equity, institutional investors, and foreign publicly listed corporations increased their ownership from 6% to 24%, and as of 2020 owned 60% of wind, 45% of solar, and 28% of natural gas generation capacity. Deregulated electricity markets attract more capital from new entrants to create new plants and acquire existing ones as well as accelerate the decommissioning of coal plants. We find only limited support for the leakage hypothesis that new entrants acquire older fossil-fuel power plants from incumbent domestic listed corporations and keep operating these plants. The changing ownership structure has implications for electricity markets as private equity operates power plants more efficiently at lower heat rates and sells electricity for a $2.04 higher average price per MWh. Within markets of a given regulatory structure, time, and technology, private equity owners sell electricity under contracts with shorter duration, shorter increment pricing, and more peak-term periods, especially when selling electricity generated from fossil fuels.Financing Infrastructure in the Shadow of Expropriation
Abstract
We examine the optimal financing of infrastructure when governments have limited financial commitment and can expropriate rents from private sector firms that manage infrastructure. While private firms need incentives to implement projects well, governments need incentives to limit expropriation. This double moral hazard limits the willingness of outside investors to fund infrastructure projects. Optimal financing involves government guarantees to investors against project failure to incentivize the government to commit not to expropriate which improves private sector incentives and project quality. The model captures several other features prevalent in infrastructure financing such as government co-investment, tax subsidies, development rights, and cross-guarantees.Discussant(s)
James Poterba
,
Massachusetts Institute of Technology
Jonathan Hall
,
University of Toronto
Akshaya Jha
,
Carnegie Mellon University
Marcus Opp
,
Stockholm School of Economics
JEL Classifications
- H4 - Publicly Provided Goods
- R4 - Transportation Economics