A classroom exercise: voting by ballots and feet.

Summary

---

Targeting Teaching

See the full content of this document

Extract

---

A classroom exercise: voting by ballots and feet.

1. Introduction

When there is freedom in choosing where to live among competing jurisdictions, individuals will "shop" for locations that most closely match their demands for local public goods, resulting in an efficiency-enhancing outcome. Tiebout (1956) first made this argument to challenge the Musgrave-Samuelson analysis, in which the market falls short of providing the efficient amounts of public goods. This inefficiency is caused by a free rider problem. In the ideal world envisioned by Tiebout, however, individuals sort themselves into groups with similar preferences by freely moving to their desired communities and thus reveal their true preferences for public goods in the process. The Tiebout hypothesis has spurred a fruitful research agenda in public finance and urban economics, and the efficiency-enhancing property of the Tiebout solution has been corroborated and supported by both theoretical and empirical work.

With the level of public good provision and taxes preset by the jurisdictions in the Tiebout model, individuals essentially "vote" by moving to the jurisdiction that most closely approximates their demands for local services. Explicit voting mechanisms, which play a crucial role in the public economics literature, are absent in the original Tiebout model. Some extensions of the Tiebout model, however, have integrated voting. Konishi (1996), for instance, obtains efficient equilibrium outcomes in a local public good economy where individuals have free mobility and each jurisdiction is allowed to adopt certain collective choice rules to determine the provision of public goods and taxation. In other words, efficient outcomes can be achieved when individuals vote both by feet and by ballots.

The efficiency-enhancing property of this enhanced version of the Tiebout model is illustrated in the classroom experiment presented here. We find that individual students obtain the level of public goo...

See the full content of this document

---