A classroom exercise: voting by ballots and feet.

• Author: Hewett, Roger
• Position: Targeting Teaching

1. Introduction

   When there is freedom in choosing where to live among competing jurisdictions, individuals will "shop" for locations that most closely match their demands for local public goods, resulting in an efficiency-enhancing outcome. Tiebout (1956) first made this argument to challenge the Musgrave-Samuelson analysis, in which the market falls short of providing the efficient amounts of public goods. This inefficiency is caused by a free rider problem. In the ideal world envisioned by Tiebout, however, individuals sort themselves into groups with similar preferences by freely moving to their desired communities and thus reveal their true preferences for public goods in the process. The Tiebout hypothesis has spurred a fruitful research agenda in public finance and urban economics, and the efficiency-enhancing property of the Tiebout solution has been corroborated and supported by both theoretical and empirical work.

   With the level of public good provision and taxes preset by the jurisdictions in the Tiebout model, individuals essentially "vote" by moving to the jurisdiction that most closely approximates their demands for local services. Explicit voting mechanisms, which play a crucial role in the public economics literature, are absent in the original Tiebout model. Some extensions of the Tiebout model, however, have integrated voting. Konishi (1996), for instance, obtains efficient equilibrium outcomes in a local public good economy where individuals have free mobility and each jurisdiction is allowed to adopt certain collective choice rules to determine the provision of public goods and taxation. In other words, efficient outcomes can be achieved when individuals vote both by feet and by ballots.

   The efficiency-enhancing property of this enhanced version of the Tiebout model is illustrated in the classroom experiment presented here. We find that individual students obtain the level of public good provision and taxation that most resembles their preferences by moving to a community with other like-minded residents and by voting to pass a budget the community as a whole prefers. Further, the exercise shows that the moves made by individual students almost always improve their welfare levels, and that the total net benefit from all the communities increases when residents can move to different jurisdictions and vote to determine the levels of public good provision and taxation. These outcomes provide an intuitive introduction to topics on the provision of local public goods and the Tiebout hypothesis. Instead of fixing the voting rule as in Konishi (1996), we allow the residents of each jurisdiction to collectively choose a decision rule. Although residents are free to choose any voting mechanism, the preferences of the median voter typically determine the level of public goods provision. (1) The outcome obtained from the median voter preferences coincides with the result from the simple majority rule, and thus can lead to a useful class discussion of voting rules and the median voter theorem. The observed outcomes can also stimulate discussions of local public goods, efficiency, fiscal federalism, migration trends, and related concepts in public choice and public finance. The experiment is designed to be used in introductory or intermediate microeconomics classes, or in public choice, law and economics, and urban economics classes.

2. Experimental Setup

   In this section, we describe the experimental design and provide the general procedures. The instruction sheet in the Appendix provides the precise details for using this experiment in a class of about 15 to 30 students, although we have adapted the setup for somewhat larger classes.

   Preferences

   The basic idea is to let students sort themselves into different communities based on their preferences over (local) public goods. Each community is allowed to provide only one of several alternative public goods. Playing cards are used to induce diverse preferences over possible types of public goods. The four different suits of cards correspond to four different types of public goods. For example, you might think of the four suits (diamonds, clubs, hearts, and spades) as corresponding to alternative types of sports facilities or museums, for example, diamonds for baseball.

   The numbers on the cards are used to determine the preferences for public goods. In particular, the sum of the numbers of cards for each suit determines the intensity of preference for that suit. A person with a hand with a three of hearts (3H), a ten of hearts (10H), and a four of clubs (4C) would strongly prefer a community that provides the public good associated with hearts. For this person, the monetary value for the public good provided in a hearts community can be 13 (= 3 + 10), although the actual benefit could be less than 13 for this person if a lower level is selected by the community. For example, suppose the hearts community chooses 9H as its preferred level. The person in the example, with hearts cards that sum to 13, would only receive a benefit of 9 units. Since the selected good is public in nature, a second person with hearts cards that sum to 9 would also receive a benefit of 9 in this community. Thus, the benefit to any individual of being in a particular community that selects public good of type i is computed as:

   Benefit = min {provision level of type i, sum of cards of type i}.

   Note that if the community decides on 9H, then any person with hearts cards that sum to an amount below 9 would only receive that lower amount. Thus the card sum for each type of public good represents a person's preferred level for that good because excess provision only results in higher taxes. Benefits are measured in dollar amounts (willingness to pay) so that they can be compared directly with costs. The tax cost of the public good for each member of the community is determined by dividing the total provision cost by the number of residents:

   Cost = k x level chosen/number of members in the community,

   where k is a constant cost parameter that is greater than 1. The payoff for each person is the difference between the benefit and the tax cost paid. The instructor can discuss the different aspects of the local public good being provided in the experiment. The benefit level captures the nonrival part, which is identical for all members of a given community. Members from one community cannot enjoy a public good provided by another community; hence the benefits of the good are local. Economies of scale in the provision of the public good are modeled through the tax, where a larger community reduces the contribution of every member. Note that nonexcludability is manifested through the "local" nature of the public good.

   Procedure

   Playing cards, a few manila envelopes, and copies of the instruction sheet in the appendix will suffice for advance preparation for carrying out this experiment in a 50-minute class period. Begin by marking the locations of the predetermined communities in the classroom with the manila envelopes that display the name of the community. Choose community names you think will appeal to your students, or let the residents select their own names. To generate interesting behavior, the initial number of communities should be greater than the number of public goods, and we recommend using a cost parameter of k = 2. We typically use five communities, located at the four corners of the room, with the remaining community in the middle. Assign the students to a community based on where they are seated. In large classes, you might also recruit a couple of volunteers from the class to assist with the experiment.

   After locations have been assigned, designate one person in each location to serve as mayor, whose job is to coordinate the community's decision-making process by chairing meetings, voting on all issues, and serving as a tiebreaker. The mayor will also report the community's decision to the instructor. Then pass out the instruction sheets and deal three cards to each student (only the numbered cards). For larger classes it will be necessary to use several decks of cards. The instructions should be read aloud, and then students...