The politics of infrastructure investment: The role of product market competition

Abstract

In spatial competition, public infrastructure plays a crucial role in determining product market outcomes. In our model, consideration of infrastructure's impact on the product market drives the preferences of consumers in their dual role as voter/taxpayers. The spatial heterogeneity of consumers produces conflicting political interests and in many cases inefficient outcomes. However across both exogenous and endogenous market environments product market competition consistently leads to higher levels of publicly funded infrastructure than monopoly/collusion. Furthermore, competition's boost to the popular support for infrastructure investment is often excessive while monopoly leads to underinvestment. Show more