ON THE DYNAMIC SELECTION OF MECHANISMS FOR PROVISION OF PUBLIC PROJECTS

How do individuals'spatial decisions affect the institutions for publi c goods provision over time? This paper describes a dynamic model in w hich the provision mechanism for a public project is itself the object of locational choice of individuals. Individuals in an ongoing societ y must choose between a location with a Majority Rule mechanism and on e with a Voluntary Contribution mechanism. Each mechanism determines a funding decision for a local public project which is repeated over ti me. Generations of individuals asynchronously supercede their 'parents ', creating an entry/exit process that allows individuals with possibl y different beliefs to enter society. A self-confirming equilibrium (S CE) belief process describes an evolution of beliefs in this society c onsistent with a self-confirming equilibrium (Fudenberg and Levine, 19 93) of the repeated location/provision game. It is shown that the proc ess with belief mutation as new individuals enter society results in a globally absorbing state in which the Majority Rule mechanism is the unique survivor of the two.