Equilibrium and Inefficiency in a Community Model With Peer Group Effects

Public-service output depends on input expenditures, on own personal characteristics, and on the characteristics of the other residents in the community (the peer group effect). In a community model with public expenditures set by voting, with migration between communities, and with land price differentials (capitalization), it is shown that communities may become heterogeneous in composition and (second-best) inefficient. This equilibrium occurs when the peer group effect is neither "too strong" nor "too weak." The inefficiency arises because an externality is created by migration. The land price differential does not play the part of the "price" of the better peer group but of a transfer payment.

[1]  J. Brueckner,et al.  Spatially-limited altruism, mixed clubs, and local income redistribution , 1987 .

[2]  Robert M. Schwab,et al.  Disentangling the demand function from the production function for local public services : The case of public safety , 1987 .

[3]  Richard Arnott,et al.  Peer group effects and educational attainment , 1987 .

[4]  Eric A. Hanushek,et al.  The Economics of Schooling: Production and Efficiency in Public Schools , 1986 .

[5]  J. Henderson.  The Tiebout Model: Bring Back the Entrepreneurs , 1985, Journal of Political Economy.

[6]  Thomas Romer,et al.  Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice , 1984 .

[7]  Bruce W. Hamilton.  The flypaper effect and other anomalies , 1983 .

[8]  D. Epple,et al.  The Implications of Competition Among Jurisdictions: Does Tiebout Need Politics? , 1981, Journal of Political Economy.

[9]  T. Bewley.  A Critique of Tiebout's Theory of Local Public Expenditures , 1981 .

[10]  D. Pinés,et al.  CLUBS, LOCAL PUBLIC GOODS AND TRANSPORTATION MODELS A synthesis , 1981 .

[11]  S. Rose-Ackerman.  Market models of local government: Exit, voting, and the land market , 1979 .

[12]  EQUILIBRIUM IN A SYSTEM OF COMMUNITIES WITH LOCAL PUBLIC GOODS A Diagrammatic Exposition , 1979 .

[13]  METROPOLITAN FRAGMENTATION AND LOCAL PUBLIC EXPENDITURES , 1978, National Tax Journal.

[14]  R. Inman.  Testing political economy’s ‘as if’ proposition: is the median income voter really decisive? , 1978 .

[15]  J. Henderson,et al.  Peer group effects and educational production functions , 1977 .

[16]  W. Wheaton,et al.  A bid rent approach to housing demand , 1977 .

[17]  Frank Westhoff,et al.  Existence of equilibria in economies with a local public good , 1977 .

[18]  Anita A. Summers,et al.  Do Schools Make a Difference , 1977 .

[19]  E. Berglas,et al.  Distribution of tastes and skills and the provision of local public goods , 1976 .

[20]  B. Frey,et al.  Two Approaches To Estimating Public Expenditures , 1976 .

[21]  Bruce W. Hamilton.  Zoning and Property Taxation in a System of Local Governments , 1975 .

[22]  Thomas F. Pogue,et al.  Effect of Police Expenditures on Crime Rates: Some Evidence , 1975 .

[23]  W. Stronge,et al.  LAW ENFORCEMENT EXPENDITURES AND URBAN CRIME , 1974, National Tax Journal.

[24]  Joseph E. Stiglitz,et al.  The demand for education in public and private school systems , 1974 .

[25]  J. Henderson,et al.  Public goods, efficiency, and regional fiscal equalization , 1974 .

[26]  T. Bergstrom,et al.  Private Demands for Public Goods , 1973 .

[27]  R. Deacon,et al.  The Demand for the Services of Non-Federal Governments , 1972 .

[28]  B. Ellickson.  Jurisdictional Fragmentation and Residential Choice , 1971 .

[29]  W. Oates.  The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis , 1969, Journal of Political Economy.

[30]  Alexander M. Mood,et al.  Equality of Educational Opportunity. , 1967 .

[31]  Charles M. Tiebout.  A Pure Theory of Local Expenditures , 1956, Journal of Political Economy.