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The Law od Demand in Tiebout Economies

  • Edward Cartwright

    ()

    (Department of Economics, Keynes College, University of Kent)

  • Myrna Wooders

    ()

    (Department of Economics, Vanderbilt University)

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 firm) 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 (plumbers, lawyers, 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 an 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. This paper is to appear in a volume on Tiebout economies, to be published by the Lincoln Institute.

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File URL: http://www.accessecon.com/pubs/VUECON/vu05-w27.pdf
File Function: First version, 2005
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0527.

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Date of creation: Nov 2005
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Handle: RePEc:van:wpaper:0527
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  4. Kovalenkov, Alexander & Wooders, Myrna Holtz, 2001. "Epsilon Cores of Games with Limited Side Payments: Nonemptiness and Equal Treatment," Games and Economic Behavior, Elsevier, vol. 36(2), pages 193-218, August.
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  9. 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.
  10. 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.
  11. Alexander Kovalenkov & Myrna Wooders, 2005. "Laws of scarcity for a finite game - exact bounds on estimations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 383-396, 08.
  12. Alexander Kovalenkov & Myrna Holtz Wooders, 2000. "Approximate Cores of Games and Economies with Clubs," Econometric Society World Congress 2000 Contributed Papers 1790, Econometric Society.
  13. F. H. Knight, 1924. "Some Fallacies in the Interpretation of Social Cost," The Quarterly Journal of Economics, Oxford University Press, vol. 38(4), pages 582-606.
  14. Wooders, Myrna Holtz, 1983. "The epsilon core of a large replica game," Journal of Mathematical Economics, Elsevier, vol. 11(3), pages 277-300, July.
  15. 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.
  16. 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.
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  23. Myrna Holtz Wooders, 1996. "Equivalence of Lindahl equilibrium with participation prices and the core (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 115-127.
  24. Myrna Holtz Wooders, 1992. "Large Games and Economies With Effective Small Groups," Discussion Paper Serie B 215, University of Bonn, Germany, revised Aug 1992.
  25. 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.
  26. 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.
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