Trade in a Tiebout Economy

John Wilson

American Economic Review, 1987, vol. 77, issue 3, 431-41

Abstract: Trade in a Tiebout EconomyThis paper explores both the positive and normative aspects of interregional commodity trade in a "Tiebout e conomy," i.e., a many-region economy with perfect labor mobility and endogenous government decision making. For a model with scale econom ies in public good consumption, it is shown that any equilibrium is a symmetric; regions containing the same types of individuals and production possibilities nevertheless differ in the traded goods which they produce and the public-good levels which they provide residents. In fact, each region specializes in producing only one of the traded private goods. The paper proves that an equilibrium is Pareto efficient. Copyright 1987 by American Economic Association.

Date: 1987
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