Local Public Goods, Adaptive Migration Decisions and Agglomerative Bias

We study a model in which heterogeneous consumers or potential migrants face uncertainty with respect to the equilibrium fiscal policies of individual communities. Following standard criteria of empirical relevance of local public finance analysis, our model has the following characteristics:<p> Government policies are determined in a political process, by majority voting. The empirical importance of local property taxes is taken account of by incorporating a land market and by the assumption that the provision of local public goods is financed by a property tax. Preferences of consumers are not only expressed by voting but also by decisions on residential locations. The number of jurisdictions is fixed and given, and there are relocation costs. The latter assumptions imply that changes in voting equilibria and the consequent changes of fiscal policies implemented in one jurisdiction do not leave the utility levels of other communities unaffected.<p> To take account of the limited information collection and processing possibilities of individuals, migration decisions are modeled to be based on a non-sophisticated method of estimating the future distribution of voting equilibria across jurisdictions. It is shown that using the stochastic stability equilibrium concept the claims raised by Tiebout in his seminal article on jurisdictional competition are easier to maintain than in a model of rational behavior.