In his famous 1954 paper "A Theory of Local Expenditures," economist Charles Tiebout proposes a novel solution to the problem of providing adequate amounts of public goods. The situation, as economists see it, is this: finding the equilibrium quantity of a public good and providing the Pareto optimal amount depend on the government's ability to gauge each individual's demand for a public good—a very difficult feat to accomplish. Tiebout devises a model that would force individuals reveal their preferences: in a world in which there were many different localities, each with different "revenue-expenditure" packages (and therefore different levels of public good provision), citizen-voters can move to whichever locale precisely matches the levels of taxation and public good provision they desire. They can, in essence, vote with their feet. In this way, each individual in the nation receives precisely the amount of public goods he desires, and Pareto efficiency is achieved.
Models are useful in helping us to understand how complex systems work; however, as the assumptions that underpin a model become more unrealistic, the explanatory or normative power of the model significantly decreases. Tiebout's model relies on a number of such assumptions. One of these assumptions is that citizens have no employment commitments that will keep them from freely moving whenever they desire (and another is that there are no costs—financial, social, or emotional—associated with moving). One can see intuitively that such an assumption is impractical; but what do the national data say?
This article from The Economist, "Move over," shows that mobility has been steadily falling in the United States since the early 1990s, from close to 3% of Americans moving across state lines every year to around 1.5%. That is, Americans are staying put in increasing numbers. The authors point to two trends, one of which weakens Tiebout's model, the other of which may serve to strengthen it. The first is that 98% of job growth between 1991–2008 was in "non-tradable" industries—that is, jobs that are necessary in every community and are not traded across long distances (dentists, educators, health-care workers). This trend makes it increasingly difficult and undesirable to find jobs in other states, and so the employment-based "cost" of moving has risen in the past two decades—a hit to Tiebout's model. The other trend, however, is that the availability of information has dramatically increased, such that people can learn about different communities (the weather, the cost of living, the abundance of public parks, etc.) without having to actually move there. In short, people can find the right job in the right city with fewer moves than before. This explanation serves to rescue Tiebout's model, as low mobility rates could merely indicate that people found their ideal revenue-expenditure packages quicker and easier than before. Although unrealistic as a model for a polity, Tiebout's idea may yet retain some of its persuasive power.
1 comment:
This article was really interesting, and not something I had thought about before. I agree with your second point about information, but from what I read in the article it seems that the rise in "non-tradeable" jobs can fit into Tiebouts model. It seems to say that they job market is starting to look homogenous which points to a diverse job market in each state. Instead of making it more difficult to find a job elsewhere, it makes it easier to find a job inside someone's current state. If you want to be a dentist you don't have to move out of state, you can do it in your own. This lowers the cost of moving, because the cost of moving your assets and losing and creating social connections decreases as distance does. Granted being in the same state means you have the same state taxes, different communities within the state still have different costs and benefits.
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