The Law of Demand in Tiebout Economies

Edward Cartwright, John Conley and Myrna Wooders

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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.

Pages: 42 pages
Date: 2005
New Economics Papers: this item is included in nep-mic and nep-ure
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The Law of Demand in Tiebout Economies (2005)
Working Paper: The Law od Demand in Tiebout Economies (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:734

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