The Elgar Companion to Public Choice, Second Edition
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The Elgar Companion to Public Choice, Second Edition

Edited by William F. Shughart II, Laura Razzolini and Michael Reksulak

The Companion lays out a comprehensive history of the field and, in five additional parts, it explores public choice contributions to the study of the origins of the state, the organization of political activity, the analysis of decision-making in non-market institutions, the examination of tribal governance and to modeling and predicting the behavior of international organizations and transnational terrorism.
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Chapter 11: Federal systems

Randall G. Holcombe

Extract

Public choice has always had a strong interest in federal systems. The Tiebout (1956) model predates the recognition of public choice as a distinct subdiscipline, but Tiebout’s model has a clear public choice foundation in which people ‘vote with their feet’ to support a revealed preference mechanism that can increase the efficiency of public sector resource allocation. In response to Samuelson’s (1954, 1955) claim that one can demonstrate in theory the optimal level of public goods production, Tiebout showed that while there may not be an obvious way of finding that optimum theoretically, federal systems of government offer a practical method for doing so, namely intergovernmental competition. Intergovernmental competition is both efficiency enhancing and a way of aggregating individuals’ preferences in Tiebout’s framework – that is, it is an instrument consistent with the theory of public choice. While federalism was discussed in the public finance literature prior to Tiebout, Tiebout’s article laid a clear foundation on which the public choice literature relating to federal systems has developed. Much of the public choice literature on federal systems builds on Tiebout. Early contributors, such as Barr and Davis (1966), Barlow (1970), Borcherding and Deacon (1972), and Bergstrom and Goodman (1973), looked at the degree to which differences in public sector output across jurisdictions could be accounted for by differences in voter characteristics.

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