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).

Preview

PDF WRAP_Cartwright_twerp_734.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (254Kb)

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
Date:	17 November 2005
Number:	No.734
Number of Pages:	42
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	[1] E. Bennett and M. Wooders (1979) Income distribution and firm formation, Journal of Comparative Economics 3 304-317. [2] Berglas, E. (1976) “Distribution of tastes and skills and the provision of local public goods,” Journal of Public Economics 6, 409-423. [3] T. Bewley (1981) A critique of Tiebout theory of local public expenditure, Econometrica, 49, 713-740. [4] J.K. Brueckner (1994) “Tastes, skills and local public goods,” Journal of Urban Economics 35, 201-220. [5] Buchanan, J. M. (1965) “An economic theory of clubs,” Economica 32, 1-14. [6] J. Conley and M.Wooders, (2000) “Tiebout Economies with Differential Genetic Types and Endogenously Chosen Crowding Characteristics,” Journal of Economic Theory (forthcoming). [7] J. Conley and M.Wooders, (1997), Equivalence of the Core and Competitive Equilibrium in a Tiebout Economy with Crowding Types, Journal of Urban Economics 41, 421-440 . [8] J. Conley and M.Wooders, (1998) “Hedonic Independence and Tastehomogeneity of Optimal Jurisdictions in a Tiebout Economy with Crowding Types”, University of Illinois, Champaign, Office of Research Working Paper 95-118. [9] Conley, J. and M. H. Wooders (1996) “Taste-homogeneity of optimal jurisdictions in a Tiebout economy with crowding types and endogenous educational investment choices,” Recherche Economiche 50, 367-87. [10] Davis, O.A. and A.B. Whinston (1967) “On the distinction between public and private goods,” American Economic Review 57, 360-73. [11] DeSerpa, A.C. (1977) “A theory of discriminatory clubs,” Scottish Journal of Political Economy 24, 33-41. [12] DeVany, A.S. and T.R. Saving (1977) “Product quality, uncertainty, and regulation: The trucking industry,” American Economic Review 67, 583-94. [13] R.F.Elliot, (1990), Labour economics: a comparative text, McGraw-Hill Publishing Company. [14] R.Filer, D.Hamermesh and A.Rees, (1996) The Economics of Work and Pay, Harper Collins College Publishers. [15] Hillman, A.L. and P.L. Swan (1979) “Club participation under uncertainty, ” Economics Letters 4, 307-12. [16] Kamien, M.I., N.L. Schwartz, and D.J. Roberts (1973) “Exclusion, externalities, and public goods,” Journal of Public Economics 2, 217-30. [17] Knight, F.H. (1924) “Some fallacies in the interpretation of social cost,” Quarterly Journal of Economics 38, 582-606. [18] Kovalenkov, A. and M. Wooders (to appear) “Comparative Statics and Laws of Scarcity for Games” to appear in Essays in Honor of Marcel K. Richter, Daniel McFadden and Rosa Matzkin (eds). [19] Kovalenkov, A. and M. Wooders (2005) “Laws of scarcity for a finite game; Exact bounds on estimation,” Economic Theory 26, 383-396. [20] Kovalenkov, A. and M. Wooders (2003) “Approximate cores of games and economies with clubs” Journal of Economic Theory,110, pp 87-120. [21] Kovalenkov, A. and M. Wooders (2003) “Epsilon cores of games with limited side payments; Nonemptiness and equal treatment” Games and Economic Behavior, August 2001, vol. 36, no. 2, pp. 193-218 (26). [22] A. Mas-Colell, M. Whinston and J. Green, (1995) Microeconomic Theory, Oxford University Press. [23] McGuire, M. (1974) “Group size, group homogeneity, and the aggregate provision of a pure public good under Cournot behavior,” Public Choice 18, 107-26. [24] Millward, R. (1970) “Exclusion costs, external economies, and market failure,” Oxford Economic Papers 22, 24-38. [25] Nichols, D., E. Smolensky, and T.N. Tideman (1971) “Discrimination by waiting time in merit goods,” American Economic Review 61, 312-23. [26] Oakland, W.H. (1972) “Congestion, public goods, and welfare,” Journal of Public Economics 1, 339-57. [27] Ng, Y.K. and R.D. Tollison (1974) “A note on consumption sharing and non-exclusion rules,” Economica (41), 446-50. [28] Pigou, A.C. (1920) The economics of welfare, Macmillan, London. [29] Pauly, M. (1970) “Cores and clubs,” Public Choice 9, 53-65. [30] Pauly, M. (1967) “Clubs, commonality, and the core: An integration of game theory and the theory of public goods,” Economica 34, 314-24. [31] S. Rosen, (1978) Substitution and Division of Labour, Economica, 45, 235-250. [32] S. Rosen, (1986) The theory of equalising differences, Chapter 12 of the Handbook of Labor Economics, Volume 1, edited by O. Ashenfelter and R. Layard, Elsevier Science Publishers. [33] P. Samuelson, (1954) The pure theory of public expenditure, Review of Economics and Statistics, 36, 387-389. [34] Smith, A. (1776) An Inquiry Into the Nature and Causes of the Wealth of Nations, London: W. Strahan. [35] C. Tiebout, (1956) A pure theory of local expenditures, Journal of Political Economy, 64, 416-424. [36] Tollison, R. D. (1972) “Consumption sharing and non-exclusion rules,” Economica (39), 279-91. [37] Wooders M.H. (1978) ‘Equilibria, the Core, and Jurisdiction Structures in Economies with a Local Public Good’, Journal of Economic Theory 18, 328-348. [38] M.Wooders (1981) ”A Limit Theorem on the ε-core of an economy with Public Goods”, National Tax Institute of Japan Discussion Paper. [39] M. Wooders (1983) “The Epsilon Core of a Large Replica Game,” Journal of Mathematical Economics 11, 277-300. [40] M.Wooders (1989), A Tiebout Theorem, Mathematical Social Sciences, 18, 33-55. [41] Wooders, Myrna H. (1994) “Large Games and Economies with Effective Small Groups”, in Game-Theoretic Methods in General Equilibrium Analysis, J.-F. Mertens and S. Sorin, eds., Kluwer Academic Publishers: Dordrecht, Boston, London, 145-206. [42] Wooders, M.H. (1997) “Equivalence of Lindahl equilibria with participation prices and the core,” Economic Theory 9,113-127.
URI:	http://wrap.warwick.ac.uk/id/eprint/1461

Request changes to a record

Actions (login required)

View Item