CHAPTER 4
Hedonic Approaches to Estimating the Impact of Access to Public Infrastructure and Extension: Methodology and Results
T
here is a large set of economic literature on measuring the impact of rural investments, including Jimenez (1995); Jacoby (2000); Fan, Zhang, and Zhang (2002); Mogues, Ayele, and Paulos (2008); and Der- con et al. (2009). One major challenge in evaluating this impact is to isolate the effects that are solely attributable to rural investments and not to other unrelated effects that may simply be correlated with household or district characteristics. In assessing the impact of rural investments, it would be extremely difficult to design a counterfactual scenario against which to com- pare differences, as in the case of a randomized experiment. In the literature, several different approaches are used to measure the impact of access to public infrastructure and rural services. Each approach has advantages and disadvantages. Given the trade-offs of different approaches, this research monograph reports the results of two different econometric methods used to generate a range of estimates of the impact of agricultural public spend- ing on household welfare. The first method is a hedonic approach like that developed by Jacoby (2000), using land values to capture the potential increase in future income streams generated by welfare-increasing rural investments. The second method uses panel data to estimate the effects of lagged access to infrastructure and services on welfare indicators, con- trolling for the initial conditions of the household (Dercon et al. 2009). The alternative specification serves as a robustness check for the different methodologies of identifying the impact of access to publicly funded infra- structure and rural services.
A necessary precondition for both types of analysis is adequate data sources. We have three different data sources for evaluating outcomes. This monograph draws primarily on household survey data from Nepal Living Stan- dards Surveys 1 and 2 (NLSS 1 and 2) (Nepal, CBS 2004; World Bank 2006), for
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