Let Tiebout pick up the tab: Pricing out externalities with free mobility

Konferenzbeitrag

Free mobility has not been thought of as an effective tool to correct over- or underproduction of externalities. In this paper, we establish that foot voting can internalize the cost of negative externalities. Workers have to accept the wage and rent, however high or low they are in equilibrium, if they cannot relocate. In reality, they are mobile and they can effectively influence the equilibrium wage and rent to reflect the externalities by threatening to walk away if the current externalities are at an intolerable level. Firms indirectly pay for the damage in the form of an increased labor or land cost and thus the externalities are partially internalized in an open city as opposed to a closed city. We will specify the condition under which an open equilibrium is efficient in the presence of externalities, and discuss potential policy implications of our findings.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: 56th Congress of the European Regional Science Association: "Cities & Regions: Smart, Sustainable, Inclusive?", 23-26 August 2016, Vienna, Austria

Classification and Topics

• Classification: Wirtschaft ; Externalities ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics ; General Equilibrium and Welfare Economic Analysis of Regional Economies
• Subject: Externality ; Foot Voting ; Quality of Life ; Production Economy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Watanabe, Hiroki
• Event: Veröffentlichung
• (who): European Regional Science Association (ERSA)
• (where): Louvain-la-Neuve
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/174625
• Last update: 10.03.2025, 11:43 AM CET