Econometrica: Sep 1980, Volume 48, Issue 6

The Tiebout Hypothesis: Near Optimality in Local Public Good Economies<1467:TTHNOI>2.0.CO;2-M
p. 1467-1485

Myrna Wooders

Over two decades ago, Charles Tiebout conjectured that in economies with local public goods, consumers "vote with their feet" and that this "voting" creates an approximate "market-type" equilibrium. He hypothesized that this approximate equilibrium is "nearly" optimal and, the smaller the moving costs, the closer the equilibrium is to an optimum. This paper provides a formal model of an economy with a local public good and endogenous jurisdiction structures (partitions of the set of agents into jurisdictions) which permits proofs of Tiebout's conjectures. Analogues of classical results pertaining to private-good economies, such as existence of equilibrium and convergence of the core to equilibrium states of the economy, are obtained for the approximate equilibrium and approximate cores.

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