This paper estimates two sources of benefits related to sanitation infrastructure access: a direct benefit households receive when they have access to sanitation infrastructure, and an external benefit produced by the neighborhood's access to sanitation infrastructure. Using a sample of children under age four from rural areas of India in the Third Round of District Level Household Survey 2007–08, the study demonstrates evidence of positive direct benefits and a concave positive externality for improved sanitation and fixed-point defecation. The paper finds that a child who moves from a household without improved sanitation and a low ratio of village access to a household with improved sanitation and a high ratio of village access enjoys a reduction in diarrhea prevalence of 47 percent. From this, one-fourth of this benefit is due to the direct benefit, leaving the rest to external gains. These results hold under several robustness checks.

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