A Dynamic Tiebout Theory of Voluntary versus Involuntary Provision of Public Goods
This paper considers a dynamic model of Tiebout-like migration between communities that utilize distinct allocation procedures for public goods. At issue is whether voluntary or compulsory procedures are more likely to prevail over time. We model infinitely lived individuals who make repeated, sequential location decisions over one of two communities. Each community uses a distinct mechanism for allocating public goods. The first is one in which contributions are given voluntarily by the citizenry of the community. The second is a compulsory scheme by which individuals are taxed proportionately to wealth with the tax determined by a majority vote. Opportunities to accumulate wealth exist via accumulation of public capital. The Markov Perfect equilibria of the dynamic game are studied. Our main result shows that when accumulated wealth converges to a steady state, individuals' locational choices eventually ``select" the involuntary provision mechanism. This holds despite the fact that unanimous location in the voluntary provision community may in many cases remain as a Nash equilibrium of the static game each period. We also describe conditions under which voluntary provision survives. These conditions require that accumulation of capital fails to decrease wealth dispersion over time. The results are shown to be consistent with findings relating inequality to school choice.
|Date of creation:||27 Jan 1999|
|Date of revision:|
|Note:||Type of Document - Acrobat pdf file; prepared on IBM PC - PC- TEX ; to print on Acrobat PDF Writer; pages: 29 ; figures: included. This is the revised and final version forthcoming in Review of Economic Studies. We have benefitted from the helpful suggestions of Andrew Austin, Marcus Berliant, Yan Chen, Hyun Song Shin, an anonymous referee, and numerous seminar participants.|
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