State Capacity and Infrastructure Costs

• In Event: Fiscal Rules, Capital Finance, and Infrastructure Delivery

Abstract

Why is it so expensive to build and maintain infrastructure in the US? We collect new project-level data on infrastructure costs and conduct a survey on how states plan, procure, and deliver these projects. We find that two important inputs appear to particularly drive costs: (1) the capacity of the agency delivering the project and (2) the lack of competition in the market for government construction contracts. We unpack these findings with administrative data that links individual personnel with infrastructure contracts in California. Higher-quality government engineers deliver projects at a lower cost. Quality is more important in markets with fewer available bidders, suggesting that increasing competition is an important mechanism through which these higher-quality bureaucrats reduce costs. Further, losing expertise has substantial consequences---we estimate that a one percent retirement shock in the California Department of Transportation would lead to additional project costs that far outpace wage savings. Our results highlight the value of experience and human capital in public organizations.

Authors

• Zachary Liscow, zachary.liscow@yale.edu

• William Nober, Columbia University

• Cailin Slattery, University of California, Berkeley