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Goods, Infrastructure, and a Market for Lemons in Birmingham, Michigan

Updated: Mar 23

In my time on the City of Birmingham, Michigan Multi-modal Transportation Board, I have become concerned about the state of public infrastructure in the City, and more broadly across the State, the Nation, and the World.


In the decades immediately following WW II, nations built new infrastructure to supply drinking water, remove wastewater, drain storm water, and provide a comfortable road surface. These systems are now well past their expected lifespans, but are still in use. Over the next few decades, much of our spending will be devoted to taking showers, flushing toilets, avoiding floods, and traversing road surfaces.


I teach a graduate engineering management course at Oakland University in Systems Thinking, and see these issues as real-life examples of the concepts that I teach. This post for my public audience duplicates some in-class assignments for general interest.


Idea in Brief

  • Public Goods are those where use by one does not inhibit use by others, but if this leads to free riding the Goods will degrade and eventually collapse. Access to drinking water, sewage removal, stormwater drainage, and transportation are used as public goods, but may not be funded that way.

  • Information Asymmetry occurs when sellers are privy to information which is unavailable to buyers, creating a “Market for Lemons”. But buyers eventually over predict the presence of lemons in a market, leading to a market collapse.

  • Communities thrive when there is a social commitment to the funding of public goods, but commitment fails if burden-sharing is viewed as inequitable. A symptom of public infrastructure failure is buyers’ presumption that all properties are “lemons”, leading to a collapse in property values.

  • US communities taking advantage of post-war federal infrastructure funding in the 1950’s continue to make use of infrastructure systems which are long past their expected lifespans. The city of Birmingham, Michigan is discussed here, as an example of the many US cities facing a need to upgrade post-war infrastructure, and the risks and challenges therein.


As a teaching device, I developed the following to describe how fictional characters (representing an amalgamation of actual statements made by City officials and members of the public) might respond to dilemmas facing the city. Individuals (fictional and otherwise) work virtuously to address local problems from their own perspective, but such focus makes the holistic system difficult to understand. It is not the purpose of this document to place blame on individuals, but rather to recognize how systemic failures occur.



Background


The following video presents a description by the city engineer in

  • How streets are reconstructed in Birmingham neighborhood

  • The reaction of residents when informed of the necessary costs involved in improving their streets (water, sewer, drainage, and road surface) and

  • A deliberation by the elected commission regarding these issues.




Conversation Starters (Class Homework)

In my teaching approach, I assign learning material and ask "Conversation Starters". Students write short essays on any starter they find interesting (or create their own) and then comment on the writings of others:


  • Is it the moral duty of leaders to base their decision-making on solid evidence?”

    • What responsibility do Birmingham residents have in understanding the condition of below-grade infrastructure?

    • What responsibility to realtors have in sharing this information with potential buyers?


  • For purpose of conversation assume that the Fire Chief is correct in his assertions. This is an act of "truth to power". What would you do in similar circumstances?

    • Would you expect the Fire Chief to see recognize such issues before others in the city?


  • The Headlee Amendment creates a reinforcing growth scenario, in which long-term ownership encourages owners to stay longer. (The longer the owner stays, the harder it is for them to to leave.) However, long-term ownership decreases available funding for infrastructure maintenance and reconstruction.

    • But reinforcing growth eventually create balancing effects, where long-term ownership discourages staying longer. What would balance a growth in long-term ownership?


  • (p. 14): "But despite his arguments, the Commission continued the “pay-as-you-go” funding structure, anyway."

    • Commissioners stick to a ‘fairness’ policy that prioritizes the 85/15 percentage contribution, rather than homeowner cost, and seem unwilling to bring the issue to the voters.  Are Commissioners "Prisoners of their System"? 


  • Who should pay the cost of PROW reconstruction?

    • Owners of properties which abut the road, or drivers who use the road? 

    • Congestion Pricing: Imagine a toll system, in which drivers paid the specific cost of the roads (based on weight, distance, damage, etc.) on which they drove. What would this do to the automotive business model?

    • Are water and sewage fees sufficient to replace aging below-grade piping?

    • What is a better approach?



Other Pending Infrastructure Issues in SE Michigan



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