Tiebout vs. Housing Crisis

 After graduating and securing a job offer, most college students will often require living in a different city from their parents. Thus, living costs and specifically housing rent act as a major determinant in the selection process. According to Tiebout, preferences for public goods are revealed through the location each person chooses thanks to their expected full mobility. Even when people are mobile, real-world financial constraints may cause them to trade off their preferred bundle of public goods against lower housing costs. This fact diminishes the importance of your living location being informative about your public goods’ preferences which ends up distorting the optimal allocation of government funds. In this way, we can come up with the understanding that personal savings/gains outweigh the importance of the revenue - expenditure patterns in your community. 

In the case of the Bay Area, people are moving out of San Francisco in recent years because of the spikes in housing costs. Tiebout recognizes mobility costs, but modern housing costs provide an additional and particularly important financial constraint that can affect whether people can actually choose the community that best matches their public-good preferences. For this example in California, families are moving to areas with lower quality schools and greater climate risk which are quite unusual for a normal or rational person. This shows people are ready to trade their public goods’ preferences for acquiring a greater personal financial benefit on living costs. Tiebout's model could be extended with an additional assumption by explicitly considering the tradeoff between private financial benefits and local public goods. This can be another way you can consider self-interest to act as your marginal cost and public good to be your marginal benefit. You will continue consuming the right public good for you as long as your self interest would not be harmed. In other words, housing costs can cause the observed location choice to reflect a tradeoff between private financial costs and preferences for local public goods, rather than revealing public-good preferences alone.

Watch Your Trash! (Or Charlottesville Will)

Over the first few weeks of the semester, a pile of trash quickly amassed at my friends' house on University Circle - cardboard, trash bags, carpets, and every item you can possibly imagine that is involved in moving into a college residence. This mountain of trash was a negative externality that reduced the well-being of UCircle residents by being an eyesore, stinking up the area, and blocking people wanting to walk on the sidewalk without my friends compensating them. I initially imagined several Coasian solutions that could be employed to solve this problem, such as paying a sum to other residents that allowed my friends to maintain this level of trash or paying a resident to dispose of the trash themself.

The issue of trash collection was highlighted in Mueller 7, focusing on the city of Dhaka, Bangladesh, where the municipal government solution was ineffective because employees would often fail to show up, which left the garbage to rot in the streets and angered residents. Luckily we have stronger institutions in the United States than Bangladesh, and the municipal government's trash collection service is largely effective from what I gather by word-of-mouth. Yet even though residents pay a fee for trash collection in Charlottesville, it does not mean residents are free to dispose of it how they please. Charlottesville's Code of Ordinances section 5-148 prohibits the accumulation of trash and debris on private property, including but not limited to garbage, rubbish, paper, trash, among other forms. 

After my friends' trash mountain had nearly doubled in size, one day a man living on UCircle literally walked in through their front door and threatened to report them to the city. My friends researched the repercussions and realized the city of Charlottesville would have the property cleaned by a contractor but would send them a bill for a minimum of one half-hour of labor plus an administrative fee of $75. They quickly elected to clean up the trash themselves. In this case, the other residents would be unlikely to take a Coasian bargain my friends proposed when a quick phone call could fix their problem. Charlottesville city ordinances apply regardless of whether residents pay for the government's collection service or a private one (e.g., Skyline Disposal). It appears the threat of Friedman's rule-maker and umpire came to the rescue of the other UCircle residents.

Eyes on the Street: Urban Presence as a Public Good

When we think of the public goods that constitute our public safety apparatus, our minds are usually drawn to things like police and sidewalks. We've discussed both of these examples at length in class, highlighting their non-rivalrous and non-excludable characteristics, alongside their contribution to public safety. While these are indeed public goods, there exists a far more consequential public good that we often omit from our conception of this so-called public safety apparatus: our eyes.

The constant presence of eyes on city streets, that is, people occupying city streets and sidewalks, is perhaps the most effective public safety method of all. Jane Jacobs characterizes this idea as "eyes on the street" and explains it extensively in her book the Death and Life of Great American Cities. The argument goes, that the presence of other people on city streets serves as a deterrent for potential criminals and people up-to-no-good. In this sense, we are our own police, and also the first line of defense against crime. Our eyes, then, are a public good because they serve as the "eyes on the street" which deter crime, and this benefit is both non-rivalrous and non-excludable. It's non-rivalrous in the sense that our "consumption" of crime deterrence does not prevent others from the same indulgence. It's non-excludable in the sense that we cannot exclude others from "consuming" the crime deterrence that our eyes offer.

Thanks, Tiebout. You’ve fixed the EU.

Opponents of the European Union’s jurisdictional expansion cite numerous reasons. “Brussels is too opaque,” some say. “Fiscally responsible countries will have to further subsidize irresponsible ones.” Yet, few posit the Tieboutian argument: at status quo, the EU enables the European continent to approach an optimal allocation of public goods. Consider the scholar’s assumptions. The Schengen Area removes international mobility barriers for individuals and businesses, with regional subsidies further lowering relocation costs. The internet, artificial intelligence, and the EU’s language-translation requirements foster the proliferation of information about government services, and the free-movement area includes 29 member states from which to choose. The number of Europeans working remotely has doubled since the pandemic, reducing career-related constraints. Centuries of national division and conflict has limited externality spillover of some public goods. And each nation’s immigration policy suggests there is an optimal population size to which each government aspires. Per Tiebout’s model, a European—his “consumer-voter”—can select the EU member state with the government services which most closely align with their preferences. A health-conscious Hungarian might seek out Finland's air quality, or family-oriented Romanian might enjoy Austria's high law-enforcement efficacy.

Of course, in reality, cultural barriers and job constraints prevent perfect application of Tiebout’s model, which was also designed for local public good allocation. However, never before has the European continent been closer to the model’s assumptions, and largely due to the EU’s integration efforts. At a time in which European public sentiment oscillates between the EU’s dissolution or federalization, perhaps the Tieboutian model can serve as a guiding force. The EU could be an institution which solely seeks to maximize the model’s assumptions, while leaving decisions regarding government resource allocation to its member states. Some public goods, such as defense, may be ceded to the EU, especially to prevent the free-rider problem NATO faces. Yet, Tiebout offers a middle ground which ensures economic efficiency—the goal of programs such as the Schengen Area—while maximizing national sovereignty.

AI Risk: A Coasian Solution?

The recent attack on Hugging Face by rogue OpenAI agent swarms has encouraged discussion of AI risk. "Doomers," or those who favor a shutdown of AI development, fear that continued development poses an existential risk that human civilization will be destroyed as AI agents spiral out of control. Let us assume that these doomers do not use AI, as they believe their usage would create incentives for labs to continue development. If we assume that development does in fact increase existential risk, developers (the producers) and users (the consumers) are imposing an uncompensated cost on the doomers, creating a negative externality. 

Thanks to Coase, we know that there exists a potential solution if transaction costs are sufficiently low and property rights are defined. An individual doomer with sufficient funds or a collective can bargain with the leaders of AI development, and if they can agree on a price to shutdown, the externality can be internalized. However, this solution seems relatively implausible for several reasons listed below. 

• The value that labs demand to shut down may be prohibitively large for a non-government entity. Consider Google's market cap of roughly $4 trillion, SpaceXAI's present valuation of $2 trillion, and Anthropic's and OpenAI's suggested IPOs at roughly the same value. And the heads of these labs believe strongly in the value of continued development. Dario Amodei suggests a future with 10-20% annual GDP growth! 
• There is a potential holdout problem. Even if Anthropic and OpenAI agree to terms with the doomers, Google, SpaceXAI, or Chinese developers like Moonshot may hold out for a higher dollar value or on principle, making bargaining difficult. 
• There is a free-rider problem. Each doomer fearing catastrophic risk benefits from the reduction in risk regardless of their contribution to the proposed payment. 

Is Voting Rational

Voting exhibits many traits of a public good. It is non-rival; my vote does not impede your ability to enjoy the right of voting, and I cannot exclude you from voting if you meet the appropriate qualifications. Therefore, since voting is a public good, it ought to display the trends of other public goods. Namely, that as the population increases, so does the free rider problem. As the number of people in the electorate increases, the power of any individual vote decreases. As a result, there would be less incentive in a large election to bear the cost of voting, as the likelihood of your vote deciding the election of a particular candidate or policy drops. 

But the numbers seem to tell a different story. Take the state of Virginia. In the 2024 presidential election, 72.9% of eligible voters in Virginia turned out to vote. In the following year, only 54.9% of eligible voters voted in the gubernatorial election. This does not make sense from a pure public goods framework. In the presidential election, the population of voters is vastly bigger, and so it would follow that more people would not vote and act as a free rider. However, 18% more Virginians voted in the presidential election than in the gubernatorial election the following year. Clearly there are other factors at play, but why do these other factors cause people to deviate from what the public goods framework would suggest so drastically?