Tiebout, Civil Rights, and Local Goods

In 1956, economist and geographer Charles Tiebout published an extremely influential article titled "A Pure Theory of Local Expenditures" in the Journal of Political Economy. Very briefly, Tiebout argued that local governments solve the free rider problem that occurs on the national level. Economists, most notably Paul Samuelson in 1954, demonstrated that free riding occurs when national governments provide goods and services. Since no one can be excluded from consuming these public goods, individuals will not have an incentive to reveal their preference for the good, which can cause under-production of the good or excessive use by some to the deteriment of others. This is a problem, because free riderism results in pareto inefficiency. An example, given by Russell Hardin, makes things clear:

Suppose that each of us can pollute less if we pay a little more for our cars. We would all benefit from cleaner air and a cleaner atomosphere, thus reducing global warming. Individually, of course, my polluting less barely makes a dent in the air quality, and there's no way I'll be able to tell the difference. I thus may be tempted to pay less for my car, knowing that others will pay the additional fee. I'm therefore a "free rider", receiving the benefits that my fellow citizens pay for without actually contributing myself.

Samuelson and others argued that the solution to the free rider problem is political intervention, similar to when we want regulation in cases of a market failure. Tiebout's paper, published two years after Samuelson's, argued that in the local context, however, the free rider problem can be solved non-politically. Local governments, Tiebout argued, have the power to provide goods and compete with other localities for populations they want to attract. So, for example, if a locality wants to attract doctors, it might consider investing in a really good local hospital. Or, if a locality wants to attract rich people who have little need for public services, it might decrease its property taxes and enact zoning laws that prohibit small residential units. Assuming citizen mobility to move around (a big assumption, mind you), Tiebout showed that people "vote with their feet" by relocating to the community that best satisfies their preferences. This also generates competition between different localities.

Tiebout's insights have been very profound for the study of local governance. Most people writing about local problems have tended to focus on issues such as taxation, zoning, city services, and the like. Here, however, I would like to point out another "attractive package" that localities can offer, that of extending civil rights guarantees more than other localities or even the state. Today, cities all over the world have become leaders in progressive causes, often not waiting (or even going against) central government. A few examples come to mind. San Francisco married same-sex couples (until the mayor was forced to stop) and New York City banned trans fats (think of the right to health). This is by no means cabined to the U.S. As the New York Times reported, Mexico City recently passed legislation permitting same-sex marriages and adoptions. Of course, municipalities can offer less progressive rights packages too. For example, if a locality is especially interested in attracting libertarians (don't ask me why), it might provide very little social and economic rights and position itself as a "night watchman" municipality.

This kind of local legislation might not ultimately withstand constitutional scrutiny for a variety of reasons. In the U.S., federalism concerns and municipal home rule laws often limit the level of discretion enjoyed by local governments. In Mexico, there could be a conflict between the Mexican Constitution and the local ordinance. That issue will probably be litigated in the near future. But what's important to remember is that lower taxes, more/fewer services, and better schools, are not the only ways to attract potential residents. Civil rights can be conceptualized as an economic package just like regular financial incentives. Several cities have already realized this and are working to expand the scope of the civil rights guarantees they offer. More cities, I believe, will follow suit.