Demand for Local Public Services Revisited: the Case of Fire Protection

This article estimates a more general demand function for local fire services simultaneously with a flexible cost function. Besides the standard income and price variables, the demand model includes estimates of marginal cost, tax exporting, and debt financing. Using these results, it is possible to reject several of the common assumptions about public sector technology and costs made in past demand re search. When the estimates of the demand model proposed in this study are compared to a standard expenditure demand model, there are major differences. In particular, the elasticity with respect to median income was found to be significantly higher using the more general model, which suggests that misspecification of the demand function may partially account for previous findings of a "flypaper effect."