A Mechanism Design Approach to the Tiebout Hypothesis

60 Pages Posted: 11 Aug 2015

See all articles by Philippe Jehiel

Philippe Jehiel

University College London - Department of Economics; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Laurent Lamy

Paris School of Economics (PSE)

Date Written: August 2015

Abstract

We revisit the Tiebout hypothesis in a world in which agents may possess private information as to how they value the various public goods in the various locations, and jurisdictions are free to choose whatever mechanism to attract citizens possibly after making some investments. It is shown that efficiency can be achieved as a competitive equilibrium when jurisdictions seek to maximize local revenues but not necessarily when they seek to maximize local welfare. Limitations of the result are discussed.

Keywords: competing exchange platforms, competing mechanisms, endogenous entry, free riding, local public goods, mechanism design, Tiebout hypothesis

JEL Classification: D82, H4

Suggested Citation

Jehiel, Philippe and Lamy, Laurent, A Mechanism Design Approach to the Tiebout Hypothesis (August 2015). CEPR Discussion Paper No. DP10758, Available at SSRN: https://ssrn.com/abstract=2642223

Philippe Jehiel (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4458 2873 (Phone)
+33 1 4458 2880 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Laurent Lamy

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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