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The Tiebout Hypothesis

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PPGPortal > Home > Concept Dictionary > T, U, V > The Tiebout Hypothesis
 
The Tiebout Hypothesis

The political theory model by Charles Tiebout that, under ideal circumstances, people will reveal their preferences for municipal public goods by ‘voting with their feet’.

(Tiebout, Charles (1956) "A Pure Theory of Local Expenditures," The Journal of Political Economy. V. 64 N. 5, pp. 416-424.)


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Tiebout sought to explain how municipalities can address the difficult question of allocating public goods. Public goods such as police or parks are non-rival because one person’s use or enjoyment cannot limit another person’s, and non-excludable because it is difficult or impossible to exclude anyone from their benefits. At the same time, because you cannot vary the quantity of these types of goods, it is difficult or impossible determine public demand and set a price for them (i.e. as long as parks are free to enter, it is impossible to determine what a resident would pay for their use). Consequently, municipal governments struggle to determine how much of these services to provide.

Tiebout suggested that if there are a large number of homogenous communities with no externalities between them, where there is perfect mobility between these municipalities and perfect information about service levels and taxes, an optimal allocation of public goods will occur. This is because people will ‘vote with their feet’ and go live in the municipality that benefits them most and best reflects their preferences. He concluded that small municipalities should generally be more capable of satisfying individual preferences than big cities that are less representative and impose uniform tax and expenditure packages.

Of course, such conditions are clearly not possible in reality. Perfect information does not exist. Perfect mobility is questionable when one considers people’s family loyalties, the need for proximity to employment, and a range of other factors. And there are invariably a number of externalities between municipalities. Nevertheless, the basic premise that municipalities should as best as possible try to create the conditions to allow residents to reveal their preferences for public goods remains a cornerstone of urban public finance theory. (Bird and Slack 1993 pp. 23-6)
     
The Tiebout Hypothesis

The political theory model by Charles Tiebout that, under ideal circumstances, people will reveal their preferences for municipal public goods by ‘voting with their feet’.

(Tiebout, Charles (1956) "A Pure Theory of Local Expenditures," The Journal of Political Economy. V. 64 N. 5, pp. 416-424.)


---------------------------------

Tiebout sought to explain how municipalities can address the difficult question of allocating public goods. Public goods such as police or parks are non-rival because one person’s use or enjoyment cannot limit another person’s, and non-excludable because it is difficult or impossible to exclude anyone from their benefits. At the same time, because you cannot vary the quantity of these types of goods, it is difficult or impossible determine public demand and set a price for them (i.e. as long as parks are free to enter, it is impossible to determine what a resident would pay for their use). Consequently, municipal governments struggle to determine how much of these services to provide.

Tiebout suggested that if there are a large number of homogenous communities with no externalities between them, where there is perfect mobility between these municipalities and perfect information about service levels and taxes, an optimal allocation of public goods will occur. This is because people will ‘vote with their feet’ and go live in the municipality that benefits them most and best reflects their preferences. He concluded that small municipalities should generally be more capable of satisfying individual preferences than big cities that are less representative and impose uniform tax and expenditure packages.

Of course, such conditions are clearly not possible in reality. Perfect information does not exist. Perfect mobility is questionable when one considers people’s family loyalties, the need for proximity to employment, and a range of other factors. And there are invariably a number of externalities between municipalities. Nevertheless, the basic premise that municipalities should as best as possible try to create the conditions to allow residents to reveal their preferences for public goods remains a cornerstone of urban public finance theory. (Bird and Slack 1993 pp. 23-6)

Approved for glossaryposting by Ben Eisen on February 9, 2011


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© University of Toronto 2008
School of Public Policy and Governance