Equivalence of the Core and Competitive Equilibrium in a Tiebout Economy with Crowding Types

Abstract We propose a new model of a local public goods economy with differentiated crowding. The new feature is that taste and crowding characteristics of agents are distinguished from one another. We prove that if the economy satisfies strict small group effectiveness then the core is equivalent to the set of Tiebout equilibrium outcomes. Equilibrium prices are defined to depend solely on crowding characteristics. This implies that only publicly observable information, and not private information such as preferences, is needed to induce agents to sort themselves into efficient jurisdictions. Thus, our model allows us to satisfy Bewley's 6 anonymity requirement on taxes in his well-known criticism of the Tiebout hypothesis.

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