Cost Efficiency, Urban Patterns and Population Density When Providing Public Infrastructure: A Stochastic Frontier Approach

Abstract

Relying on stochastic frontier analysis we propose a methodology to study the technological characteristics and cost efficiency levels related to the provision of public infrastructure for basic utilities. The methodology assumes a cost minimizing behaviour on the part of public officials when planning the construction of local infrastructure, which is represented by way of a flexible translog cost function. Introducing relevant definitions of scale economies, associated with larger numbers of inhabitants and dwellings, as well as economies of density, brought about by reductions in urban dispersion, we analytically determine the optimal population densities for which average cost is minimized. We illustrate our model with the water cycle sector, including water distribution, sewage collection and cleansing of wastewater, and considering data at the municipality level for the Spanish region of Castilla y León. The obtained results indicate potential cost savings in the form of decreasing average costs, as relevant scale and density economies are present, along with large inefficiency levels. Relevant policy guidelines favouring larger and denser urban sizes are drawn, as the observed cost excess is the result of a general suboptimal urban size in terms of population density, and the negative effects of dispersed settlement patterns.

Growing resources for growing cities: Density and the cost of municipal public services in Latin America

“…We believe that more nuanced approaches to the relationship between urban population density and fiscal outcomes are in order. As argued above, with the exception of Ladd (1992) andÁ lvarez et al (2014), we find that the study of nonlinear relationships is absent in the literature, with most studies assuming an overall linear linkage between density and service expenditures. Empirical research on alternative dynamics would constitute a much needed advancement in the field, particularly given the subjacent theoretical body on the cost structure of, and demand for, services provided at local level.…”

“…She gets a similar finding for safety spending, with the lowest costs at a density of 250 residents per square mile. Álvarez et al (2014) show that optimum density levels vary for each service provided, ranging from 2800 residents per square kilometre for paving and lighting, to 3100 residents per square kilometre for water provision, to 4400 residents per square kilometre for sewerage.…”

The long emergence of the infrastructure emergency

“…Recent evidence suggests that per capita costs for networked infrastructures are increasing, owing to their growing scale and complexity, fuelled by advances in technology and increases in labour, material and energy costs. This goes against the neo-classical economic precept of economies of scale, which when applied to urban infrastructure suggests the opposite (Álvarez et al, 2014;Dittrich-Wesbuer et al, 2014).…”

Economies of density for on-site waste water treatment

“…Much research has consequently evolved around space-dependent cost efficiencies in many different infrastructure fields 2 ), including the water and wastewater sector (cf. Guerrini et al, 2013;Alvarez et al, 2014). The finding that the operation and maintenance (O&M) costs of point-type infrastructures are particularly dependent on the settlement or population density is especially interesting with respect to OST systems (inter alia Schiller and Siedentop, 2005;Wenban-Smith, 2009).…”