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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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  1. 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.
  2. 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.
  3. Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
  4. Wooders, Myrna Holtz, 1989. "A Tiebout theorem," Mathematical Social Sciences, Elsevier, vol. 18(1), pages 33-55, August.
  5. Alexander Kovalenkov & Myrna Holtz Wooders, 2000. "Approximate Cores of Games and Economies with Clubs," Econometric Society World Congress 2000 Contributed Papers 1790, Econometric Society.
  6. 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.
  7. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May.
  8. Brueckner, J.K., 1990. "Tastes, Skills, And Local Public Goods," Working Papers 8, John Deutsch Institute for the Study of Economic Policy.
  9. 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.
  10. Myrna Holtz Wooders, 1996. "Equivalence of Lindahl equilibrium with participation prices and the core (*)," Economic Theory, Springer, vol. 9(1), pages 115-127.
  11. Myrna Holtz Wooders, 1992. "Large Games and Economies With Effective Small Groups," Discussion Paper Serie B 215, University of Bonn, Germany, revised Aug 1992.
  12. Wooders, Myrna Holtz, 1983. "The epsilon core of a large replica game," Journal of Mathematical Economics, Elsevier, vol. 11(3), pages 277-300, July.
  13. 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.
  14. Bennett, Elaine & Wooders, Myrna, 1979. "Income distribution and firm formation," Journal of Comparative Economics, Elsevier, vol. 3(3), pages 304-317, September.
  15. Hillman, A. L. & Swan, P. L., 1979. "Club participation under uncertainty," Economics Letters, Elsevier, vol. 4(4), pages 307-312.
  16. 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.
  17. Morton I. Kamien & Nancy L. Schwartz & Donald John Roberts, 1972. "Exclusion, Externalities, and Public Goods," Discussion Papers 17, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. DeSerpa, Allan C, 1977. "A Theory of Discriminatory Clubs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 24(1), pages 33-41, February.
  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. Kovalenkov, Alexander & Wooders, Myrna, 2003. "Laws of Scarcity for a Finite Game : Exact Bounds on Estimations," The Warwick Economics Research Paper Series (TWERPS) 691, University of Warwick, Department of Economics.
  21. 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.
  22. Oakland, William H., 1972. "Congestion, public goods and welfare," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 339-357, November.
  23. Millward, R, 1970. "Exclusion Costs, External Economies, and Market Failure," Oxford Economic Papers, Oxford University Press, vol. 22(1), pages 24-38, March.
  24. 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.
  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.
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