Migration-Proof Tiebout Equilibrium: Existence and Asymptotic Efficiency

Tiebout's basic claim was that when public goods are local there is an equilibrium and every equilibrium is efficient. The literature seems fall short of verifying this conjecture: If the notion of equilibrium is too weak then equilibrium is nonempty yet some equilibria could be inefficient. On the other hand, if the notion of equilibrium is too strong, then every equilibrium is efficient yet equilibrium may be empty. This paper introduces a new equilibrium notion, a \textit{migration-proof Tiebout equilibrium}, which is a jurisdiction structure such that (i) no consumer wants to migrate unilaterally across jurisdictions (free mobility of consumers), and (ii) no subgroup of consumers want to form a new jurisdiction that would not create instability in population distribution (free entry of migration-proof jurisdictions). We show that there is always a unique migration-proof equilibrium and is asymptotically efficient when consumers are homogeneous.