The Political Economy of the Local Market for Public Goods: The Role of Entrepreneurs

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Standard theories of the provision of municipal services hold that market forces operate to ensure the efficient provision of these public goods. The argument is that a market is created as citizens "shop around" among different municipalities deciding to settle down and live in the municipality that provides the best combination of high services/low taxes for the individual citizen. Underlying this theory, however, are contrary to evidence assumptions that most citizens are well informed about municipal services and taxes and that it is relatively easy for individuals to move from one community to another in search of the optimal combination. This award supports an ambitious program of research to test and refine the standard Tiebout model of urban political economy and the assumptions underlying it. The investigators will conduct a series of surveys to determine the role of individuals, businesses, and governments in the creation of efficient local markets for public goods. In particular, they will examine the possibility that a subsample of the public exists which is much better informed and more mobile than the norm and whose members serve, in effect, as mobility entrepreneurs, creating markets by their actions which benefit automatically other residents of the community. The project also considers the possibility that politicians play active roles in creating markets by competing both for certain kinds of business and certain kinds of citizens as well. When completed this research should provide a better understanding of the dynamics that underlie the provision of municipal services in the United States. It should thereby establish a more rigorous, empirical basis for judging the efficiency and effectiveness of the provision of public goods by local governments.