Assessing Benefits of Slum Upgrading Programs in Second Best Settings

40 Pages Posted: 26 Jul 2006

Date Written: August 2006


Slum upgrading programs are being used by national and city governments in many countries to improve the welfare of households living in slum and squatter settlements. These programs typically include a combination of improvements in neighborhood infrastructure, land tenure, and building quality. In this paper, we develop a dynamic general equilibrium model to compare the effectiveness of alternative slum upgrading instruments in a second-best setting with distortions in the land and credit markets. We numerically test the model using data from three Brazilian cities and find that the performance of in situ slum upgrading depends on the severity of land and credit market distortions, and how complementary policy initiatives are being implemented to correct for these problems. Pre-existing land supply and credit market distortions reduce the benefit cost ratios across interventions, and change the rank ordering of preferred interventions. In the light of these findings, it appears that partial equilibrium analysis used in typical cost benefit work overstate the stream of net benefits from upgrading interventions, and may in fact propose a misleading sequence of interventions.

Keywords: Slum upgrading, preexisting distortions, second best policies

JEL Classification: R21, R31, R38, I31

Suggested Citation

Dasgupta, Basab and Lall, Somik V., Assessing Benefits of Slum Upgrading Programs in Second Best Settings (August 2006). World Bank Policy Research Working Paper, Available at SSRN: or

Basab Dasgupta

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Somik V. Lall (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States


Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics