Tiebout Model of Public Goods

Tiebout Model of Public
Goods
Name: Bodhiswattwa Chakraborty
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Agenda • What are Public Goods?
• Problems of Free Rider
• Tiebout Model
• Assumptions
• How it works?
• Understanding Tiebout: ELI5
• Conclusion
What are Public Goods?
• Goods which are generally provided by the government are not explicitly paid by
people to attain those service
• Goods which are non-rivalrous in consumption in nature

• Goods which are non-excludible in nature
Free Rider Problem
Free riding refers to the situation where individuals benefit from a
public good without contributing their fair share towards its provision
or cost.
• Inadequate provision of public goods

• Inefficiency in resource allocation
• Unfair burden on contributors
• Diminished incentives for innovation and improvement
Introduction: Tiebout Model
The Tiebout Model, named after the economist Charles Tiebout, was first introduced in Tiebout's
seminal paper "A Pure Theory of Local Expenditures" published in 1956.
The model aimed to provide insights into the provision of public goods at the local level and the role
of individual choice and mobility in achieving efficient outcomes.
• Samuelson's model focussed on provision of public goods on national level, Tiebout model
focuses on provision of public goods in local level.
• Samuelson tried to address the problem of Free Riding through mechanisms such as taxation
and redistribution, Tiebout model provides a solution through individual mobility and
competition among communities.
Assumptions
• Mobility and costless migration: The model assumes that individuals have the ability to freely
and costlessly move between different communities.

• Homogeneous preferences: The model assumes that individuals within a given community have
similar preferences for public goods and tax rates.
• Competitive community behavior: The model assumes that communities compete with each
other to attract and retain residents.
• Utility maximization: The model assumes that individuals act as rational utility maximizers,
seeking to maximize their overall well-being based on their preferences for public goods and tax
rates.
How it works?
The Tiebout Model operates through a series of mechanisms and interactions that can be summarized
• Individual choice and mobility: The model emphasizes the freedom of individuals to choose the
community in which they reside based on their preferences for public goods and tax rates.
Individuals have the ability to "vote with their feet" and select the community that best aligns
with their desired bundle of public goods and tax burden.
• Competition among communities: Communities compete with each other to attract and retain
residents. They do so by offering different combinations of public goods provision and tax rates.
This competition creates incentives for communities to tailor their offerings to the preferences
of individuals, aiming to attract residents who value the specific bundle of public goods they
provide.
Self-selection and sorting: As individuals have the freedom to choose their community, they self-
select into communities that align with their preferences. Individuals with similar preferences tend to
gravitate towards the same communities, creating clusters of like-minded residents within each
community.
Efficiency through decentralized decision-making: The Tiebout Model suggests that decentralized
decision-making at the local level leads to more efficient outcomes. By allowing individuals to choose
the community that best suits their preferences, the model harnesses the collective wisdom of
individuals to guide the provision of public goods.
Conclusion
In conclusion, the Tiebout Model offers valuable insights into the provision of public goods at the
local level and the role of individual choice and mobility in achieving efficient outcomes.
The model recognizes the diversity of individual preferences and the challenges of aligning those
preferences with the provision of public goods.
By allowing individuals to choose the community that best matches their preferences, the model
promotes competition among communities, self-selection and sosorting of residents, and the
matching of public goods provision to individual preferences.

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Tiebout Model of Public

• Goods which are non-rivalrous in consumption in nature

• Inadequate provision of public goods

and costlessly move between different communities.

similar preferences for public goods and tax rates.

other to attract and retain residents.

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