The aim of this paper is to check whether intergovernmental transfers for water projects accepted in 1986 can be rationalized by a simple efficiency criterion. The empirical findings support this conjecture only partially.

We estimate the impact of piped water and sewers on property values in mid-19th century Chicago. The cost of sewer construction depends sensitively on imperceptible variation in grade, and such variations in grade delay water and sewer service to part of the city. This delay provides...