Water, Water, Everywhere: Municipal Finance and Water Supply in American Cities
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.
The findings of this study are the subject of a comment in another NBER working paper. The authors of this study have posted a response; the authors of the commenting study have posted a rejoinder here.
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, Glaeser and Goldin. 2006