Urban density promises agglomeration benefits but also exacerbates pollution and disease transmission. Sanitation infrastructure may therefore be essential for cities to sustain dense concentrations of residents and firms and realise the benefits of density. To study how sanitation investments shape urban development, we compile a novel address-level dataset covering the construction of the Parisian sewer network in the nineteenth century. Exploiting within-neighbourhood variation in the timing of sewer connections in an event-study design, we find that connecting a parcel to the sewer network increases both population and firm counts. Sewer connections in nearby locations generate additional increases, with larger spillovers in more densely populated areas. We incorporate these findings into a quantitative urban model and estimate that sewer access increases residential amenity values by 2.5% and firm productivity by 5% in connected locations. The quantitative analysis further reveals that the net externalities of urban density depend on sanitation. In unsewered areas, additional people raise others’ utility at low levels of neighbourhood density but lower it at higher levels, as pollution costs intensify. Counterfactuals indicate that sewerage investments account for 30% of Paris’ population increase in the second half of the nineteenth century. One-quarter of this effect operates through reductions in negative sanitation externalities, while the remainder reflects the private benefits of sewer access in connected locations. These findings highlight how sanitation infrastructure can enable urban growth by mitigating the costs of density.

Partners: International Growth Centre, Suntory and Toyota International Centres for Economics and Related Disciplines, Innovations for Poverty Action, DataPlas Ghana

Developing megacities face severe congestion externalities but lack the fiscal and enforcement capacity for textbook regulation. In its absence, unregulated private provision emerges across services like waste, sanitation, water, and transport. We ask whether limited, feasible regulation can leverage these informal markets to deliver public services at scale, focusing on trash collection in Accra, Ghana. Using novel data, we document an imperfect but functioning market: households pay informal tricycle collectors for door-to-door service, yet prices remain too high for universal access, and final disposal occurs largely at illegal dumpsites. We identify a single feasible lever — subsidies for formal, environmentally controlled disposal — and evaluate it using a new structural model of urban waste collection and disposal. To estimate the model, we combine survey experiments eliciting household demand, a custom app recording transactions and tricycle routes, and a field experiment randomising dumping fees. A modest subsidy captures roughly 80% of the first-best welfare gain, substantially reducing environmental damages and generating larger gains at lower cost than planned infrastructure expansion. Limited price-based regulation can align informal private initiative with social objectives even where state capacity is weak.