Essays in public economics

This dissertation consists of two chapters. Both chapters use unique data to answer questions in public economics. In Chapter 1, I study optimal law enforcement in presence of corruption using unique data on bribes given to traffic police in Russia. Corruption in law enforcement is thought to decrease the expected punishment for a violation of law and hence decreases deterrence of crimes. I examine whether it is possible to offset the effect of corruption and restore deterrence by increasing the magnitude of sanctions. Whether an increase in punishment will restore deterrence depends on how sensitive the bribes are to changes in sanctions. I estimate sensitivity of bribes to changes in different type of sanctions: monetary and nonmonetary, using difference-in-differences method. I find that bribes are more sensitive to changes in nonmonetary rather than monetary sanctions. In presence of corruption the socially costly monetary sanction is transformed into a bribe a socially costless monetary transfer. This further increases the attractiveness of nonmonetary sanctions in presence of corruption. I also discuss red tape as a nonmonetary sanction and its potential benefits in comparison to other nonmonetary sanctions. In Chapter 2, I study economic returns to infrastructure using historic data from the city of Chicago in 1830-1930. The city experienced rapid growth during this time making access to clean water and sewage a pressing issue. Using panel data with fixed effects and an instrumental variables approach, I estimate the causal effect of infrastructure access (water and sewage) on land values. I construct an instrument for access to infrastructure by taking advantage of a rule by which a suburb could join Chicago. One of the main motivations for joining Chicago was the provision of water and sewage. Using both panel data with fixed effects and 2SLS, I find that a that access to water positively affects land values; while access to sewage does not have a significant effect. The estimated coefficients are not statistically different between both approaches. Results suggest that access to clean water is a valuable amenity for both individuals and firms.