Tiebout is on the verge of competition

In a recent post on EconLog, I discussed a number of factors that limit the effectiveness of the electoral response. One of these is bundling. Each candidate in an election will have the power to formulate policies that affect a variety of issues. Yet every citizen has only one vote. So it is not clear whether a vote favors health policy, foreign policy, or any other number of policy areas. In addition, a voter may vote for a candidate whose foreign policy they dislike if they sufficiently like the candidate’s health policy. This bundling means that the electoral response is a very noisy signal about voter approval or disapproval of certain policies or actions.

Arnold Kling favorably quotes my post on his substack, and highlights a very good point about how this bundling problem affects not only the electoral response, but also the response to interdepartmental competition:

In the widely-unread Unchecked and unbalanced, I am pointing out another way that bundling distorts the government services market. Your local government integrates law enforcement, property zoning, schools and other services. There is no way to opt out of services you don’t like or to go with alternative providers The Tiebout hypothesis, which claims that people go out of their way to get a mix of government services of their choice, is driven by this market failure (among other reasons).

This is a wonderful point! Brian Kaplan addressed similar issues in his recent full speech at the Public Choice Society meeting, entitled “Tiebout was Wrong, But Why?” While Kling focuses on bundling issues, Kaplan focuses on the proposition that “Nonprofit competition is much worse than profitable competition. “Competition” between local governments is like an academic test that doesn’t count for your grades. “

What does this mean for cling bundling issues and the options available to citizen-consumers? Where Caplan addresses issues related to the issue where political decision makers are not the remaining claimants and therefore face very different incentives than entrepreneurs in a market.

It is possible to solve both of these problems, although it is somewhat fundamental to do so. To address Kling’s concerns, we may consider liberating various aspects of the regime and allowing non-territorial entry and exit by citizen-consumers. Trent J. MacDonald proposed it and discussed the concept in detail in his excellent book The Political Economy of Non-Territorial Exit: CryptoSessionWhich I have reviewed for this Review of the Austrian Economy.

As I explained in my review:

[MacDonald] The Tiebout contest draws from the literature but notes that the Tiebout contest is limited by the cost of moving to a new geographical area. The cost of relocation could effectively make the semifinals non-competitive for governance and public goods. In addition, public services are often integrated. For example, to move to a school district of their choice, a family may move to a jurisdiction where they dislike police services. They cannot relinquish the jurisdiction of that police department while they are in the school district of their choice. Freeing public services from each other and enabling non-regional exits alleviate these related problems. If we can give individuals the ability to switch to a new provider of public services without sacrificing the benefits of their current location, it is a sign of much more meaningful competition. Similarly, if we unbundle services so that a person’s preferred police services do not determine the educational services they receive, it also enables more competition.

So McDonald’s specifically discusses unbundling and non-regional exits as a way to address real-world limitations in tiebout competition.

What about Kaplan’s concerns about inspiration, motivation, and the remaining claimants? Well, one thing that can be done is to hand over more local government services to profitable entrepreneurs operating in a competitive market. Within the limits, it can take the form of market anarchism or anarchism-capitalism, where even law and security are offered in the market!

There is plenty of room for research on the sources of “quasimarket failure”. Perhaps one way to overcome these failures is to move from “Quasimarket” to “Casey”!

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