TY  - JOUR
AU  - Coate,Stephen
TI  - Evaluating Durable Public Good Provision using Housing Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18767
PY  - 2013
Y2  - February 2013
UR  - http://www.nber.org/papers/w18767
L1  - http://www.nber.org/papers/w18767.pdf
N1  - Author contact info:
Stephen Coate
Department of Economics
Cornell University
Uris Hall
Ithaca, NY 14853-7601
Tel: 607/255-1912
Fax: 215/573-2057
E-Mail: sc163@cornell.edu
AB  - Recent empirical work in public finance uses the housing price response to public investments to assess the efficiency of local durable public good provision. This paper investigates the theoretical foundations for this technique. In the context of a novel theoretical model developed to study the issue, it shows that there is little justification for the technique if citizens have rational expectations concerning future investment in their communities. An example in which investment is chosen by a budget-maximizing bureaucrat is developed to show why the technique can falsely predict under-provision. The technique is valid, however, when citizens have adaptive expectations, believing that whatever provision level that currently prevails will be maintained indefinitely.
ER  -