Tiebout competition refers to the process by which local jurisdictions compete to attract residents by offering different bundles of taxes and public goods, allowing individuals to "vote with their feet" to choose communities that best match their preferences.

• Core Mechanism: Individuals sort into jurisdictions based on their preferences for public goods (e.g., schools, parks, safety) and tax levels. Jurisdictions that offer more desirable combinations attract more residents, increasing their tax base and enabling better public service provision.

• Efficiency Outcome: This competition drives efficiency—jurisdictions must provide public goods efficiently to retain residents, avoiding over-provision or waste. The model suggests that this market-like process leads to near-optimal allocation of resources, akin to private markets.

• Key Assumptions:

  • Mobility: Residents can move easily between jurisdictions with low costs.

  • Perfect Information: Individuals know the tax and service levels of all communities.

  • Heterogeneous Preferences: Residents differ in their tastes for public goods.

  • Local Public Goods: Goods are non-rival and non-excludable within a jurisdiction, but vary across communities.

• Challenges to the Model:

  • Equity Concerns: Lower-income residents may lack mobility, leading to unequal access to high-quality services.

  • Market Failures: In areas with few jurisdictions (e.g., monocentric cities), competition is weak, reducing efficiency.

  • Private Club Goods: The rise of planned communities offering exclusive amenities (e.g., private security, pools) can undermine public goods markets by providing substitutes that are excludable and more valued by some residents.

While the Tiebout model provides a foundational framework for understanding local government competition, real-world limitations—such as mobility barriers, information asymmetries, and the growth of private alternatives—challenge its full applicability.