Voting with Their Feet: The Tiebout Hypothesis
In the private market, a private good is efficiently allocated by the market mechanism if the market does not fail. In local public good provision, a similar adjustment mechanism could work through the choice of local government. This is called voting with their feet and was first identified by Tiebout (1956). He argued that the ability of individuals to move among jurisdictions produces a market-like solution to the local public goods problem.
Tiebout emphasized that if residents freely move among regions, local governments compete with each other with respect to the provision of local pubic goods. Individuals vote with their feet and locate in the community that offers the bundle of public services and taxes that they like best. As a result, the efficient allocation of local public goods should be attained under the following assumptions.
- 1. People can move freely among local governments.
- 2. People know everything about the provision of local public goods and their financing.
- 3. Local public goods do not spill over beyond the region.
- 4. The region where people live does not necessarily coincide with the region where they work.
- 5. Many local governments are available.
- 6. There is an optimal size of population with respect to the provision of local public goods.
- 7. In a region where the population is larger than the optimal size, local government intends to reduce the size of the population and vice versa.
In accordance with these assumptions, Tiebout pointed out:
- (i) The local public good is efficiently provided because people vote with their feet and choose their desirable regions.
- (ii) Heterogeneous people with respect to income and preferences move to form homogenous groups so that homogenous groups live in the same local government regions.
Tiebout only provided a heuristic discussion of his result. It was left to later researchers to provide the details and critics eventually emerged. His assumptions are not theoretically clear and later research has not necessarily confirmed Tiebout’s two results, (i) and (ii), given above. Indeed, the Tiebout model is plainly not an exact description of the real world.