Source: adapted from R. Prud’homme (2005) Infrastructure and Development, in F. Bourguignon and B. Pleskovic, (eds). Lessons of Experience, Proceedings of the 2004 Annual Bank Conference on Development Economics, Washington: The World Bank and Oxford University Press, pp. 153-181.
Infrastructures are capital goods that are not directly consumed and serve as support to the functions of society (individuals, institutions, and corporations). They service a derived demand since they exist to fulfill needs (e.g. transportation, mobility, power generation). Most have long life spans as they are designed to last and be resilient, but tend to have high maintenance costs. Once they are constructed, they are fixed to their location, used or not, implying that infrastructures are particularly prone to market failure if the activities they have been designed to service do not generate sufficient flows. It is challenging to provide infrastructures incrementally, so they are “lumpy” capital investments. For instance, city streets can be built incrementally, but a highway must be provided with sufficient length and coverage to be effective. An airport must be built with a specific base capacity, irrespective of its initial level of use.