Tiebout model

The Tiebout model, also known as Tiebout sorting, Tiebout migration, or Tiebout hypothesis, is a positive political theory model first described by economist Charles Tiebout in his article "A Pure Theory of Local Expenditures" (1956). The essence of the model is that there is in fact a non-political solution to the free rider problem in local governance.

Overview

Tiebout first proposed the model informally as a graduate student in a seminar with Richard Musgrave, who argued that the free rider problem necessarily required a political solution. Later, after obtaining his PhD, Tiebout fully described his hypothesis in a seminal article published in 1956 by the Journal of Political Economy.

Tiebout believes that the local governments have a more precise and detailed knowledge of the needs of the local population, thus making them more readily able to accurately tax the people on the goods and services it provides to the local population. He later describes municipalities within a region as offering varying baskets of goods (government services) at a variety of prices (tax rates). Given that individuals have differing personal valuations on these services and varying ability to pay the attendant taxes, individuals will move from one local community to another which maximizes their personal utility. The model states that through the choice process of individuals, jurisdictions and residents will determine an equilibrium provision of local public goods in accord with the tastes of residents, thereby sorting the population into optimum communities. The model has the benefit of solving two major problems with government provision of public goods: preference revelation and preference aggregation.