24 CHAPTER 4


to improvements in the installation of canal irrigation systems, to farmers’ adaptation to using canal irrigation, or to better community organization to manage water resources. In Table 4.1, we also observe a possible increase in the impact of extension services. In 1995/96, receiving an extension visit increased land value by 4.2 percent, but this estimate is not statistically significant. However, in 2003/04, extension visits increased land value by 8.5 percent, which is statistically significant at the 5 percent, one-sided level. Jacoby’s approach addresses several econometric problems unresolved by previous estimates of the impact of rural road projects. These include the endogeneity of locational decisions inherent in compensating variations relat- ing consumption and the distance to markets. One problem of this approach is that it evaluates only one outcome variable, agricultural land values, even though in rural areas, landless labor is common. By looking at only agricultural land values, this approach omits the impact of infrastructure on those people without land. In addition, travel time is affected not only by distance to roads but also by travel mode. With the increasing availability of motorcycles, it is possible to see a drop in travel time even if there is no change in access to roads. Finally, concerns about bias in parameter estimates due to household unobservables are difficult to address in this cross-sectional approach. Un- observable household characteristics such as motivation or entrepreneurial ability are likely correlated with access to services such as irrigation or exten- sion services. Although the hedonic approach does account for the endogene- ity of locational decisions, these other sources of household unobservables are potential concerns. The advantage of Jacoby’s approach is that it provides an advance in econometric technique over previous methods to evaluate the impact of access to rural infrastructure and services. This approach provides an important comparison for the panel data approach presented in the next chapter.


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