A Mechanism Design Approach to the Tiebout Hypothesis

Abstract

We revisit the Tiebout hypothesis in a world in which agents may learn extra information as to how they value the various local public goods once located, and jurisdictions are free to commit to whatever mechanism to attract citizens. It is shown in quasi-linear environments that efficiency can be achieved as a competitive equilibrium when jurisdictions seek to maximize local revenues but not necessarily when they seek to maximize local welfare. Interpretations and limitations of the result are discussed.