The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective
AbstractThis paper asks, under what conditions can the Fundamental Theorem of Welfare Economics be extended to economies with local public goods? We show that there are some fairly restrictive sets of assumptions under which a competitive local public goods equilibrium (if it exists) is efficient; more generally, however, competitive local public goods equilibria may be inefficient in the allocation of individuals among communities, in the number of communities, and in the level and kinds of public goods provided. The primary sources of inefficiency are identified and analyzed; these "market" failures are closely related to some important policy issues concerning, for instance, urban concentralization, fiscal decentralization, and regional redistribution. In communities in which landlords control the public sector, the level and kinds of public goods provided may be incorrect, and what goods are provided are supplied inefficiently. In contrast, in communities in which renters control the public sector, there are no incentives for efficiency in the supply of public goods. Because of what we refer to as rental capitalization, there may in fact be perverse incentives with respect to the kinds of public goods or "bads" provided. Not only is it the case that not every competitive equilibrium is Pareto optimal, but not every Pareto efficient allocation can be sustained by a competitive local public goods equilibrium (with the appropriate lump sum redistributions) . Just as the Fundamental Theorem of Welfare Economics does not adequately reflect the vices and virtues of competition in the market economy with purely private goods, so too here: the virtues of a decentralized mechanism for providing public goods may be vastly underestimated by our analysis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0954.
Date of creation: Jun 1984
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Groves, Theodore & Ledyard, John O, 1977.
"Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem,"
Econometric Society, vol. 45(4), pages 783-809, May.
- Theodore Groves & John Ledyard, 1976. "Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem'," Discussion Papers 144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Arnott, Richard J & Stiglitz, Joseph E, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 471-500, November.
- Stiglitz, Joseph E, 1974.
"Incentives and Risk Sharing in Sharecropping,"
Review of Economic Studies,
Wiley Blackwell, vol. 41(2), pages 219-55, April.
- Stiglitz, J. E., 1974. "The demand for education in public and private school systems," Journal of Public Economics, Elsevier, vol. 3(4), pages 349-385, November.
- Kramer, Gerald H, 1973. "On a Class of Equilibrium Conditions for Majority Rule," Econometrica, Econometric Society, vol. 41(2), pages 285-97, March.
- Slutsky, Steven, 1977. "A voting model for the allocation of public goods: Existence of an equilibrium," Journal of Economic Theory, Elsevier, vol. 14(2), pages 299-325, April.
- Berglas, Eitan, 1976. "Distribution of tastes and skills and the provision of local public goods," Journal of Public Economics, Elsevier, vol. 6(4), pages 409-423, November.
- Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, vol. 3(2), pages 99-112, May.
- Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
- Lancaster, Kelvin, 1975. "Socially Optimal Product Differentiation," American Economic Review, American Economic Association, vol. 65(4), pages 567-85, September.
- Laurence Kotlikoff & Bernd Raffelhueschen, 1991.
"How Regional Differences in Taxes and Public Goods Distort Life Cycle Location Choices,"
NBER Working Papers
3598, National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff & Bernd Raffelhüeschen & Christian D. Hagist, 2009. "How regional differences in taxes and public goods distort life cycle location choices," Hacienda Pública Española, IEF, vol. 189(2), pages 47-79, June.
- Laurence J. Kotlikoff & Robert W. Rosenthal, 1994.
"Some Inefficiency Implication of Generational Politics and Exchange,"
NBER Working Papers
3354, National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff & Robert W. Rosenthal, 1993. "Some Inefficiency Implications Of Generational Politics And Exchange," Economics and Politics, Wiley Blackwell, vol. 5(1), pages 27-42, 03.
- Marco Bassetto & Thomas J. Sargent, 2005.
"Politics and efficiency of separating capital and ordinary Government budgets,"
Working Paper Series
WP-05-07, Federal Reserve Bank of Chicago.
- Marco Bassetto & Thomas J Sargent, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1167-1210, November.
- Thomas J. Sargent & Marco Bassetto, 2004. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," 2004 Meeting Papers 3, Society for Economic Dynamics.
- Marco Bassetto & Thomas Sargent, 2005. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," NBER Working Papers 11030, National Bureau of Economic Research, Inc.
- HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2005.
"Fiscal competition, revenue sharing, and policy-induced agglomeration,"
CORE Discussion Papers
2005093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jean, HINDRIKS & Susana , PERALTA & Sholmo , WEBER, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2005062, Université catholique de Louvain, Département des Sciences Economiques.
- Ted Bergstrom & Judy Roberts & Dan Rubinfeld & Perry Shapiro, 1988. "A Test for Efficiency in the Supply of Local Public Education," Papers _036, University of Michigan, Department of Economics.
- Joseph E. Stiglitz, 1983. "Public Goods in Open Economies with Heterogeneous Individuals," NBER Working Papers 0802, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.