Tiebout model

The Tiebout model, also known as Tiebout sorting, Tiebout migration, or Tiebout hypothesis, is a positive political theory model first described by economist Charles Tiebout in his article 'A Pure Theory of Local Expenditures' (1956). The essence of the model is that there is in fact a non-political solution to the free rider problem in local governance. Specifically, competition across local jurisdictions places competitive pressures on the provision of local public goods such that these local governments are able to provide the optimal level of public goods. The Tiebout model, also known as Tiebout sorting, Tiebout migration, or Tiebout hypothesis, is a positive political theory model first described by economist Charles Tiebout in his article 'A Pure Theory of Local Expenditures' (1956). The essence of the model is that there is in fact a non-political solution to the free rider problem in local governance. Specifically, competition across local jurisdictions places competitive pressures on the provision of local public goods such that these local governments are able to provide the optimal level of public goods. Tiebout first proposed the model informally as a graduate student in a seminar with Richard Musgrave, who argued that the free rider problem necessarily required a political solution. Later, after obtaining his PhD, Tiebout fully described his hypothesis in a seminal article published in 1956 by the Journal of Political Economy. Tiebout believes that the ideas of shopping and competition could be brought into the public sphere to allow for a non-political solution to optimal public goods provision. The model holds that if municipalities offered varying baskets of goods (government services) at a variety of prices (tax rates), that people with different personal valuations of these services and prices would move from one local community to another which maximizes their personal utility. Similar to how shopping and competition lead to efficiency in private good markets, this model holds that individual choices on where to live would lead to the equilibrium provision of local public goods in accordance with the tastes of residents, thereby sorting the population into optimum communities. Basically, if an individual doesn’t like the public goods provision of one town, they can move to the next town over. The model has the benefit of solving two major problems with government provision of public goods: preference revelation and preference aggregation. Tiebout's paper argues that municipalities have two roads that they can go about in trying to acquire more persons in their community. One route is for the municipalities to act as a cartel, enforcing a singular tax rate among the various communities. In his paper, Tiebout claims this would shrink the right of voice and exit to the individual. The other option is for the municipalities to engage in tax competition. Tiebout claims the end result of both options is the same, as the tax rates of the various municipalities would converge around an average rate. Tax competition for Tiebout was an integral part of the market process between the government and its citizens.