Infrastructure Services and the Productivity of Public Capital: The Case of Streets and Highways

This paper examines the link between highway congestion, labor productivity, and output in a sample of California counties for the years 1977 through 1988. A county production function is modified to include both the value of each county's street and highway capital stock and a measure of the congestion on each county's highway network. This allows a comparison of two distinct policies—expanding the street and highway stock versus reducing congestion on the existing stock. The evidence suggests that congestion reduction is productive. The effects of expanding the street and highway stock are more suspect. Overall, the results provide evidence that using existing street and highway infrastructure more efficiently can produce economic benefits.