NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Water, Water, Everywhere: Municipal Finance and Water Supply in American Cities

David Cutler, Grant Miller

NBER Working Paper No. 11096
Issued in January 2005
NBER Program(s):   DAE   HC   PE

The construction of municipal water systems was a major event in the history of American cities -- bringing relief from disease, providing resources to combat fires, attracting business investment, and promoting development generally. Although the first large-scale municipal water system in the United States was completed in 1801, many American cities lacked waterworks until the turn of the twentieth century. This paper investigates the reason for the century-long delay and the subsequent frenzy of waterworks construction from 1890 through the 1920s. We propose an explanation that emphasizes the development of local public finance. Specifically, we highlight the importance of municipal bond market growth as a facilitator of debt finance. We argue that this explanation is superior to others put forward in the literature, including disease knowledge, the presence of externalities, municipal population density, natural monopoly, contracting difficulties, corruption costs, and growth in the supply of civil engineers.

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Published: Water, Water Everywhere. Municipal Finance and Water Supply in American Cities, David M. Cutler, Grant Miller, in Corruption and Reform: Lessons from America's Economic History (2006), University of Chicago Press (p. 153 - 184)

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