More Complications to the Tiebout Model
The Tiebout model proposes that because entry and exit out of commuter towns are relatively easy, we should expect a competitive market in local governance. If, like Gerard Depardieu, you don’t like what you’re getting, you flee somewhere more amenable. Each town offers a bundle of goods–schools, street cleaning, parks, police–and each bundle has a price collected as taxes. And because people desire these goods in different degrees, we see, as the communities sort themselves out, a difference in the quantity and quality of amenities any town provides.
Bryan Caplan started things off recently by highlighting some absurd conclusions of the model: it implies local governments will not redistribute wealth from one population segment to another (and yet we see that it does) and it suggests we should see little waste in the provision of these local goods (and yet we know how our public schools are run).
Arnold Kling followed up with some more difficulties for the theory: exit is not frictionless and the bundling of local goods helps to pile on lots of pork.
David Friedman added a note for Bryan’s post:
What’s wrong with [the model] is that land can’t move. If the local government engages in exploitative taxation, pocketing the money, people move out. As they move out, land values fall. They stop moving when the drop in land value just balances the cost of the exploitative taxation. The implication, if the rulers are smart, is that they will produce an efficient bundle of services, but tax away the land value and pocket it.
One more point I’ll add to Arnold’s thought. Our friends and the networks we create take time to develop. As a child, I hated moving to a new school because it meant I lost my friends and had to make new ones. The same effect holds for growing networks in an industry. For example, there’s some evidence that startups located in a founders’s home region outperform those started in unfamiliar places. In addition, we come to grow attached to the businesses and vendors in a neighborhood. Routines enable trust. And so, whenever we move communities, we also lose the Hayekian local knowledge about where we live, all the little tricks such as what roads to run on and where to find parking places at the train station. Sure, all these difficulties can be overcome, but the pebble problems add to the burden of exit.
Patri’s P.S. Also see Bryan’s paper “Standing Tiebout on his Head” (linked at the end of his essay), and my response: Seasteading, Tiebout, and Federalism: Seasteading FTW
Help Catalonia
Did you know that the Catalans lost independence in 1714 after being conquered?
I did not.
Did you know that they speak a different romanic language and have a distinct and very rich cultural universe that more than 12 milion people share? Did you know that Gaudí, the architect of the Sagrada Família, was beaten because he spoke Catalan, or that the Barcelona FC (Barça) was created to promote the Catalan culture? Did you know that Catalans are forbidden to call a referendum about their own destiny or that they would be one of the richest countries in the world if they just weren’t plundered 10%+ of their annual GDP? If this is news for you, please read our site, spread the word, and help Catalonia.
This Help Catalonia website offers a mix of news and opinion on Catalonian independence. Here’s a promising op-ed from the former minister of the Catalonian government. He calls for a Hanseatic Mediterranean:
In Madrid, and here in Catalonia, the most conservative –to be found among the bigwigs of the economic or media status quo– will not admit that the push towards the construction of sovereign nations, though no guarantee, is seen as an opportunity for wholesale regeneration, unfeasible within the framework of dinosaurs unable to evolve.Indeed, if we look to the Europe that functions, it orbits around two seas that hosted the city-states of theHanseatic League: the Baltic and the North Sea. Where there were city-states, there are now nation-states. Homogeneous small and medium sized states emerging after the implosion in the 19th and 20th centuries of the old Russian, German, Swedish or Danish empires. The Baltic now features independent, dynamic, flexible republics of the global economy. And in the North Sea, Holland and Flanders, both ex-colonies of Spain, the latter in the process of emancipation; Norway, formerly belonging to Sweden; and Scotland, also claiming sovereignty.Is it necessary to point out that the Mediterranean has never regained the prosperity and wealth it had, in relative terms within Europe, that it had in the times of the republic- and principality-states: Barcelona-Catalonia, or Valencia, Granada, Genoa, Provence, Florence, Venice and Naples?
Albert O. Hirschman R.I.P
The author of the seminal and must-read Exit, Voice, and Loyalty has passed away. Marginal Revolution and Dan Drezner have good summaries of his life’s work. Hirschman developed his exit/voice framework to convince economists that they paid too little attention to voice as a method of reforming institutions. He thought they focused too much on exit. Would that were true now! And he even theorized that if the power of exit were constrained, then the practices of voice would grow more useful and powerful. It appears that almost the opposite is true: the more competitive the market, the more powerful voice becomes. Think of writing a letter full of grievances to the DMV compared to filing a complaint with Starbucks.
At any rate, his contribution to political theory and economics is immense. Vixit.
Gary Becker and Richard Posner Debate the Optimal Size of Countries
Often stressed is that since larger countries have bigger domestic markets, companies in larger countries can utilize economies of scale in production. The movement toward free trade agreements and globalization during the past 60 years has enormously reduced the economic advantages of having a larger domestic market to sell goods and services. Small countries can sell their goods to other countries, both large and small, almost as easily as large countries can sell in their own domestic markets…The growth in the competitiveness of small countries on the global market is in good part responsible at a deeper level for the remarkable growth in the number of countries since 1950 from a little over 100 to almost 200 countries now. And the number of independent countries is still growing.
If fundamental cultural or religious differences, submerged by forcible integration, are not present in a large country, I doubt that there are net benefits from disintegration. There are scale advantages to being a large country, the risk diversification that I mentioned, and a measure of additional security, and I think they outweigh the efficiencies of being small. It may well be that the reduction in global barriers to trade and in threat of conquest has reduced the cost of being a small country, but I don’t think it’s increased the benefits, and the benefits are large only where the country is composed of groups that simply cannot get along with each other, so that if force is withdrawn the country breaks up.
Ron Paul: “Secession is a deeply American Principle”
The Congressman writes on his blog:
This country was born through secession. Some felt it was treasonous to secede from England, but those “traitors” became our country’s greatest patriots.
There is nothing treasonous or unpatriotic about wanting a federal government that is more responsive to the people it represents. That is what our Revolutionary War was all about and today our own federal government is vastly overstepping its constitutional bounds with no signs of reform. In fact, the recent election only further entrenched the status quo. If the possibility of secession is completely off the table there is nothing to stop the federal government from continuing to encroach on our liberties and no recourse for those who are sick and tired of it.
He must be a fan of our blog. You can read our revisionist history of the Revolutionary War as war of secession here.
Exit and Experimentation Drive Innovation
Patri has a post up over at TSI on the relative weakness of “voice” to effect change:
Imagine it is 1998, and Digital Equipment Corporation’s “AltaVista” is the most popular search engine on the young internet. Two Stanford graduate students, Larry Page & Sergey Brin, have an idea for a better search engine. With DEC’s annual shareholder meeting coming up, Larry & Sergey organize an activist campaign, soliciting their community to write letters to the board of directors and distributing material to current shareholders. Their goal is to get nominated, then elected to the board of DEC so that they can implement their new algorithm in Alta Vista.
With no proof, no website, no users – only claims about their algorithm – their attempt fails. DEC assigns a small research team to investigate new search algorithms, but with a successful and enormous popular website to run, company management is only willing to authorize small tweaks that don’t risk offending current users. Larry & Sergey go back to focusing on their studies, and Google is never born.
