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The Law of Demand in Tiebout Economies

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  • Cartwright, Edward

    (Department of Economics, University of Kent)

  • Conley, John

    (Department of Economics, Vanderbilt University)

  • Wooders, Myrna

    (Department of Economics, Vanderbilt University)

Abstract

We consider a general equilibrium local public goods economy in which agents have two distinguishing characteristics. The first is 'crowding type', which is publicly observable and provides direct costs or benefits to the jurisdiction (coalition or firms) the agent joins. The second is taste type, which is not publicly observable, has no direct effects on others and is defined over private good, public goods and the crowding profile of the jurisdiction the agent joins. The law of demand suggests that as the quantity of a given crowding type (plummers, lawers, smart people, tall people, nonsmokers, for example) increases, the compensation that agents of that type receive should go down. We provide counterexamples, however, that show that some agents of a given crowding type might actually benefit when the proportion of agents with the same crowding type increases. This reversal of the law of demand seems to have to do with interaction effect between tastes and skills, something difficult to study without making these classes of characteristics distinct. We argue that this reversal seems to relate to the degree of difference between various patterns of tastes. In particular, if tastes are homogeneous, the law of demand holds.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 734.

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Length: 42 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:wrk:warwec:734

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  1. Ng, Yew-Kwang & Tollison, Robert D, 1974. "A Note on Consumption Sharing and Non-exclusion Rules," Economica, London School of Economics and Political Science, vol. 41(164), pages 446-50, November.
  2. Kovalenkov, Alexander & Wooders, Myrna, 2003. "Approximate cores of games and economies with clubs," Journal of Economic Theory, Elsevier, vol. 110(1), pages 87-120, May.
  3. Conley, John P. & Wooders, Myrna, 1996. "Taste-homogeneity of optimal jurisdictions in a Tiebout economy with crowding types and endogenous educational investment choices," Ricerche Economiche, Elsevier, vol. 50(4), pages 367-387, December.
  4. 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.
  5. Brueckner Jan K., 1994. "Tastes, Skills, and Local Public Goods," Journal of Urban Economics, Elsevier, vol. 35(2), pages 201-220, March.
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  7. Hillman, A. L. & Swan, P. L., 1979. "Club participation under uncertainty," Economics Letters, Elsevier, vol. 4(4), pages 307-312.
  8. Alexander Kovalenkov & Myrna Wooders, 2005. "Laws of scarcity for a finite game - exact bounds on estimations," Economic Theory, Springer, vol. 26(2), pages 383-396, 08.
  9. Oakland, William H., 1972. "Congestion, public goods and welfare," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 339-357, November.
  10. De Vany, Arthur S & Saving, Thomas R, 1977. "Product Quality, Uncertainty, and Regulation: The Trucking Industry," American Economic Review, American Economic Association, vol. 67(4), pages 583-94, September.
  11. Kovalenkov, Alexander & Wooders, Myrna, 2004. "Comparative Statics And Laws Of Scarcity For Games," The Warwick Economics Research Paper Series (TWERPS) 715, University of Warwick, Department of Economics.
  12. Millward, R, 1970. "Exclusion Costs, External Economies, and Market Failure," Oxford Economic Papers, Oxford University Press, vol. 22(1), pages 24-38, March.
  13. Myrna Holtz Wooders, 1992. "Large Games and Economies With Effective Small Groups," Discussion Paper Serie B 215, University of Bonn, Germany, revised Aug 1992.
  14. Bennett, Elaine & Wooders, Myrna, 1979. "Income distribution and firm formation," Journal of Comparative Economics, Elsevier, vol. 3(3), pages 304-317, September.
  15. Wooders, Myrna Holtz, 1989. "A Tiebout theorem," Mathematical Social Sciences, Elsevier, vol. 18(1), pages 33-55, August.
  16. Tollison, Robert D, 1972. "Consumption Sharing and Non-Exclusion Rules," Economica, London School of Economics and Political Science, vol. 39(155), pages 276-91, August.
  17. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May.
  18. Conley, John P. & Wooders, Myrna H., 2001. "Tiebout Economies with Differential Genetic Types and Endogenously Chosen Crowding Characteristics," Journal of Economic Theory, Elsevier, vol. 98(2), pages 261-294, June.
  19. Nichols, D & Smolensky, E & Tideman, T N, 1971. "Discrimination by Waiting Time in Merit Goods," American Economic Review, American Economic Association, vol. 61(3), pages 312-23, June.
  20. Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
  21. DeSerpa, Allan C, 1977. "A Theory of Discriminatory Clubs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 24(1), pages 33-41, February.
  22. Wooders, Myrna, 1978. "Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 18(2), pages 328-348, August.
  23. Myrna Holtz Wooders, 1996. "Equivalence of Lindahl equilibrium with participation prices and the core (*)," Economic Theory, Springer, vol. 9(1), pages 115-127.
  24. Wooders, Myrna Holtz, 1983. "The epsilon core of a large replica game," Journal of Mathematical Economics, Elsevier, vol. 11(3), pages 277-300, July.
  25. Conley, John P. & Wooders, Myrna H., 1997. "Equivalence of the Core and Competitive Equilibrium in a Tiebout Economy with Crowding Types," Journal of Urban Economics, Elsevier, vol. 41(3), pages 421-440, May.
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Cited by:
  1. Myrna Wooders, 2009. "Market Games and Clubs," Vanderbilt University Department of Economics Working Papers 0919, Vanderbilt University Department of Economics.

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