A Mechanism Design Approach to the Tiebout Hypothesis

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