**A final factor that needs to be accounted for is the strength or weakness of a country’s institutional system.** In the best case scenario, politicians and policy makers account for the aforementioned factors and the information coming out from the respective methods when negotiating the prioritization of particular interventions. Independent or quasi-independent regulatory institutions (including the judicial and civil society) may also weigh in with checks and balances, blocking questionable infrastructure projects. However, the result of such a decision process is unlikely to be optimal when there is rentseeking behavior – which refers to situations where individuals organized in special interest groups (or acting alone) are motivated by their particular interests rather than by the general interest of the society. Examples are industrialists wanting infrastructure investments that only (or mainly) benefit them and farmers seeking cheap or free power for irrigation. Rent-seeking behavior leads some groups to attempt to capture key state institutions (such as public contracts agencies) where they can extract rents. Infrastructure projects are by nature highly politicized and a significant source of rents. Political economy analysis focuses on distributing power and wealth between different groups and individuals, and the processes that create, sustain, and transform these relationships. This type of analysis helps to identify potential winners and losers of particular infrastructure interventions. For example, Sanchez et al. (2013) investigates the winners and losers in the rural and urban spaces of an increase in total factor productivity (TFP) in Pakistan’s transport sector. Understanding the political, economic, and social processes that promote or block pro-poor investments – and understanding the role of institutions, power, and the underlying context in countries – allow more effective and politically feasible investments.<sup>19</sup>

6.1.2 Factor-based Ranking of infrastructure Investments

**Taking into account all the aforementioned caveats, some stylized rankings can be designed to facilitate prioritization of infrastructure investments.** Table 6 relates infrastructure services with some of the factors discussed above. Specifically, it ranks infrastructure services according to input intensity of use, degree of spatial manifestation, typical development outputs, and commonly debated market failures. The infrastructure services listed often fall under the public sector, but in some cases may be a combination of public and private provision. For example, sanitation via off-site systems is typically provided by public utilities, but on-site sanitation such as septic tanks are generally private investments. The list is not meant to be exhaustive and provides ranks from 1 to 3, with 1 being the lowest relative weight, based on the existing literature on infrastructure services and its impacts discussed in the previous sections.

**Different infrastructure services rank better depending on the specific factor of interest.** Take the case of solid waste. This service (both collection and processing) is primarily labor intensive, dominates urban agendas, has an important impact on welfare improvement but less of a generalized impact on economic growth, and while it generates important market failures it is not a major contributor to agglomeration effects. In contrast, connective infrastructure (such as transport infrastructure) yields higher agglomeration effects and a higher impact on economic growth than solid waste infrastructure, but a lower impact on welfare. Similarly, connective infrastructure has a higher impact on economic growth than water and sanitation infrastructure, while the ranking is reversed when talking about welfare.  When it comes to negative externalities such as local/global pollution, these are higher in the case of fossil fuels based power generation than water and solid waste infrastructure.

> 19 OECD - www.oecd.org/dac/governance/politicaleconomy

16