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The law of demand in tiebout economies

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Cartwright, Edward, Conley, John P. and Wooders, Myrna Holtz (2005) The law of demand in tiebout economies. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.734).

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Abstract

We consider a general equilibrium local public goods economy in which agents have two distinguishing characteristics. The first is 'crowding type', which is publicly observable and provides direct costs or benefits to the jurisdiction (coalition or firms) the agent joins. The second is taste type, which is not publicly observable, has no direct effects on others and is defined over private good, public goods and the crowding profile of the jurisdiction the agent joins. The law of demand suggests that as the quantity of a given crowding type (plummers, lawers, smart people, tall people, nonsmokers, for example) increases, the compensation that agents of that type receive should go down. We provide counterexamples, however, that show that some agents of a given crowding type might actually benefit when the proportion of agents with the same crowding type increases. This reversal of the law of demand seems to have to do with interaction effect between tastes and skills, something difficult to study without making these classes of characteristics distinct. We argue that this reversal seems to relate to the degree of difference between various patterns of tastes. In particular, if tastes are homogeneous, the law of demand holds.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HF Commerce

Divisions:

Faculty of Social Sciences > Economics

Library of Congress Subject Headings (LCSH):

Tiebout, Charles Mills, 1924-, Social choice, Equilibrium (Economics), Supply and demand, Public goods

Series Name:

Warwick economic research papers

Publisher:

University of Warwick, Department of Economics

Place of Publication:

Coventry

Official Date:

17 November 2005

Dates:

Date	Event
17 November 2005	Published

Number:

No.734

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

References:

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