A TIEBOUT THEORY OF PUBLIC VS PRIVATE PROVISION OF COLLECTIVE GOODS

We study whether 'coercive' public provision or voluntary private prov ision of public goods can survive when individuals who 'vote with thei r feet' can choose between communities that differ in the way that pub lic goods are provided. We obtain the following findings: (i) an equil ibrium always exists in which all individuals migrate to the community which uses voluntary provision; (ii) under very robust conditions on preferences and income distribution, an equilibrium exists in which al l individuals migrate to the community which uses coercive provision; (iii) 'interior' equilibria in which collections of individuals move t o both communities exist when income distribution is sufficiently pola rized. Such equilibria are shown to be stratified-richer individuals m igrate to the community with voluntary provision while poorer individu als reside in the public provision community. In the case where there are two types of wealth endowments, existence of stratified equilibria seems to require a negative trade-off between the wealth ratio of the rich to the poor and the numerical ratio of rich to poor in society. (C) 1998 Elsevier Science S.A.