Cleaner Waters and Urbanization

Abstract

The Clean Water Act (CWA) addresses nonpoint source pollution primarily by funding public works projects. Our study evaluates changes in rural watersheds before and after CWA projects are implemented, compared to watersheds without funding. We find that projects significantly reduce water pollution, with corresponding increases in human population and residential construction. Using housing values, we estimate that economic benefits exceed government costs by at least fourfold. Over half of this benefit is attributable to new housing. Our findings show that pollution can impede urbanization, suggesting more broadly that residential development is an important mechanism of revealed preference for environmental quality.

Keywords: water pollution, public works, rural development, environmental valuation

JEL Classification: H41, O44, Q53, Q56, R23