Commuting Infrastructure in Fragmented Cities

Cities are often divided into local governments, each responsible for their local commuting infrastructure used by local residents, workers, and outsiders. This paper examines how metropolitan fragmentation impacts the provision of commuting infrastructure and the spatial distribution of economic activity. I develop a quantitative spatial model in which municipalities compete for residents and workers by investing in commuting infrastructure to maximize net land value within their jurisdictions. In equilibrium, relative to a metropolitan planner, municipalities underinvest in areas near their boundaries and overinvest in areas away from the boundary. Central municipalities tend to underinvest more, as higher commuting costs encourage households to move closer to where they work, thereby increasing land values in central areas. Decentralized investment results in higher cross-jurisdiction commuting costs, more dispersed employment, and more polycentric patterns of economic activity. I estimate the model using data from Santiago, Chile, and find substantial gains from centralizing investment decisions. Centralization allocates infrastructure more efficiently and increases aggregate expenditure on infrastructure.