Why does the Tiebout model solve the problems with preference revelation that are present with Lindahl...

Why does the Tiebout model solve the problems with preference revelation that are present with Lindahl pricing?

Solutions

Expert Solution

Answer :

The problems with preference revelation with Lindahl pricing arise from the fact that an individual who reports lower preferences for a public good lowers the provision of that public good by only a small amount (since the total provision is average across all members of the community) but lowers his taxes by a large amount (since his taxes are based on his reported preferences). In other words, individuals have an incentive to free ride on the provision of others. In the Tiebout model everyone in each jurisdiction ends up with the same preferences, and the Lindahl prices can therefore be set equal for each resident. This means that taxes are no longer specific to an individual’s report. When an individual reports lower preferences for the public good, he lowers the provision by a small amount, but he also lowers his taxes by a small amount (and lowers everyone else’s taxes by the same amount). This removes the incentive to free ride and solves the problems with preference revelation.

In the Tiebout model everyone in each jurisdiction ends up with the same preferences, and the Lindahl prices can therefore be set equal for each resident. This means that taxes are no longer speciﬁc to an individuals report. When an individual reports lower preferences for the public good, he lowers the provision by a small amount, but he also lowers his taxes by a small amount (and lowers everyone elses taxes by the same amount). This removes the incentive to free ride and solves the problems with preference revelation.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

Explain the conditions under which Tiebout competition occurs. Why does Tiebout competition lead to efficient education...

Explain the conditions under which Tiebout competition occurs. Why does Tiebout competition lead to efficient education provision?

Calculating present and future values Use future or present value techniques to solve the following problems....

Calculating present and future values Use future or present value techniques to solve the following problems. If you inherited $60,000 today and invested all of it in a security that paid a 6 percent rate of return, how much would you have in 20 years? Round the answer to the nearest cent. Round FV-factor to three decimal places. Calculate your answer based on the FV-factor. $ Calculate your answer based on the financial calculator. $ If the average new home...

What java program would you write to solve the following problems and why does it work?...

What java program would you write to solve the following problems and why does it work? Please also comment on other students’ code at least three times. 1) Implement MyArrayStack (constructor, push, pop, peek and isEmpty), and MyLinkedQueue with both next and previous pointers (constructor, enqueuer/offer, dequeuer/poll, peek and isEmpty), and write the following two program to test them. You must use MyArrayList or MyLinkedList for the implementation. 2) For stack testing, write a program to check if a string...

why do economists use a utility function to present an economic agent’s preference ? Is this...

why do economists use a utility function to present an economic agent’s preference ? Is this utility- based approach plausible?

1. The Tiebout model is supported by the fact that residents within metropolitan suburbs have ____...

1. The Tiebout model is supported by the fact that residents within metropolitan suburbs have ____ preferences and housing prices are generally _____ in communities with efficient A.similar/lower B.varied/higher C.varied/lower D.similar/higher 2. Welfare programs have ____ tax-benefit linkages. The Tiebout model suggests these programs should be offered at the _____ level. A.strong/local B.strong/national C.weak/local D.weak/national 3. National defense is best provided at the _____ level because ____. A.local/there are low economies of scale. B.national/there are strong tax-benefit linkages C.local/there are...

Why was the gold standard developed? What problems did it appear to solve and what problems...

Why was the gold standard developed? What problems did it appear to solve and what problems did it create? What is the difference between the gold standard and the gold exchange standard?

Solve the problems described below, and present your solutions in the Excel template provided; no memo...

Solve the problems described below, and present your solutions in the Excel template provided; no memo is required with this assignment. Also, the excel spreadsheet specifies monthly billable hour data. Set March, 2013, as month zero. Ignore taxes. The due date is SATURDAY at 11:55 PM Eastern. No late work is accepted. Jane Doe, president of Big Stick Construction Co., has asked for your help in selecting new equipment for purchase. She has decided to purchase a new track hoe...

Question