Location and Welfare in Cities: Impacts of Policy Interventions on the Urban Poor

Informal settlements are an integral
part of the urban landscape in developing countries. These
settlements are widely distributed within cities, including
central business centers and peripheral areas with
environment hazards. In most cases, residents of these
settlements do not have access to basic public services and
amenities. In this paper, the authors examine the impact of
interventions, such as upgrading basic services and
resettlement policies, on the welfare of residents of these
informal settlements, who are typically the urban poor. To
examine these interventions, they estimate models of
residential location choice and allow households to be
sensitive to commuting costs to work, demand for public
services, and preferences for community composition. The
authors' empirical analysis is based on recently
collected survey data from Pune, India, and shows that poor
households prefer to live close to work and in communities
that consist of people sharing common socio-demographic
characteristics. From the perspective of households living
in informal settlements, upgrading settlements in the
original place is welfare enhancing. If a household must be
relocated, it greatly prefers to be moved to a community
that resembles its current community.