Clean water and American waterworks

FC mentioned that Werner Troesken, who died recently and unexpectedly,  had worked in the same area as me (water services). I went to his Google Scholar to see what he had written and found — amazing! — that I had used his most cited paper (“Population growth in US counties, 1840–1990”) in my PhD dissertation (p84):

A literature review uncovered only one article that discusses the influence of water on urban growth. Beeson et al. (2001) find that precipitation has a significant positive effect on population density in the United States of 1840. By 1990, this significance disappears. In fact, precipitation has a negative correlation with population growth in the 150 years after 1840. These results correspond to what we know about water in the western US: As infrastructure has brought water to arid regions, people have moved from wet, colder areas to dry, warmer areas.

In fact, I just mentioned this result to someone last week.

As I browsed through Troesken’s other papers, I found two with interesting results. In “Municipalizing American Waterworks, 1897–1915” [pdf], Troesken and Geddes (2003) describe how private water companies, fearing seizures by municipalities, would underinvest in infrastructure and thus give municipalities an excuse (under-investment) to take them over! This damned-if-you-do, damned-if-you-don’t result makes sense in the contexts of “bilateral monopoly” (a single seller facing a single buyer) and “stranded assets” (an asset that, once built, cannot be moved or re-used in any way), since in those situations it’s hard to get one side to spend on an investment that the other side might use (or benefit from) without needing to pay. In our paper on the history of the Dutch drinking water sector [pdf], we ran into this situation with English companies underinvesting (or not investing) in Dutch cities that ended up building their own water and wastewater systems.

In a second paper, Ferrie and Troesken (2008) describe “Water and Chicago’s mortality transition, 1850–1925” via the direct reduction in typhoid fever due to access to clean water and a much larger indirect impact of lower mortality among those who survived typhoid but died of another disease. This paper is interesting because the indirect drop in deaths is triple the direct drop. In our drinking water paper, we did not get into the details on the benefits of clean water, but we surely would have cited this paper in support of wide, diffuse benefits.

It’s a pity that Professor Troesken’s life ended prematurely. We need more economic historians like him.

Addendum (1 Nov): I forgot that I had downloaded another paper (“Regime change and corruption: A history of public utility regulation” [pdf]), which I just read. This chapter is interesting for two reason. First, Troesken argues that ownership changes (from public to private ownership of utilities — and vice-versa) is driven by the need for regime change because the existing structure (either private or public) has been compromised by regulatory capture. Second, this paper — and its thesis — fits into my existing idea that the public-private cycle is driven by public underinvestment (to keep prices low) that lead to privatization, which leads to re-municipalization once those investments are made (and prices rise).

The Ostroms on funding municipal services

I’ve tagged this post “from the archives” because I intend to draw attention to old but useful work that is no longer in broad circulation.

Vincent and Elinor Ostrom gave their 1977 chapter the less-than-exciting title of “Public Economy Organization and Service Delivery,” but the work is important for two reasons.

First, it’s the earliest publication (that I’ve found) that describes, defines and compares the four types of goods in the 2×2 matrix* that I use all the time:

In this blog post, I explain how excludable goods are best managed in markets (via economic tools) while non-excludable goods are best managed through political (top down) or community (peer-to-peer) processes where people can be (and must be) jointly obligated to fund public goods (via taxes) or constrained from over-appropriating common pool goods (via regulation). Besides that difference, it’s also important to know that many goods can end up in any of these boxes, depending on governance and the (im)balance between supply and demand. In this paper, we explored how drinking water in the Netherlands cycled among them. 

Second, the chapter’s theoretical discussion is used to set up the case study of interest, i.e., how falling tax revenue may make it difficult for Detroit to offer municipal services (public goods), especially when those goods are “subtractable” (common pooled goods) and insufficient in supply to meet demand. Detroit’s decline — under the twin influences of white flight to the suburbs (where politicians did everything possible to keep tax revenues to themselves) and rising poverty and crime — is well known by now, but this paper’s date suggests that the decline was decades in the making and clearly understood. I wonder how the chapter (or the book that included it) was received by local citizens and policy makers.

It’s nice to learn from the wisdom of the past.

What’s in your drawer that’s worth a read?

  • Their 2×2 is turned on its side, and they are still a bit vague about the difference between public and common pooled goods — as they were in their 1971 paper that doesn’t really mention those latter goods.