local_government - Local Government Lecture Notes, Econ...

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Local Government Lecture Notes, Econ 4621H, Spring 2008 Wen-Tai Hsu March 21, 2008
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Roles of Local Government I natural monopoly (water, sewer, trash?,. ..) I public good (nonrivalrous, nonexcludable) Free-Rider Problem I externality (leads to market failure. But doesn’t mean government should necessarily be the provider of the services. I Education? I Huge private good component I Case for a public good component. How might you benefit from an increase in the average level of education in population? —Less likely to be robbed —Knowledge spillovers
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Data on the actual roles taken See table 13.1 in Chapter 13. highlight: education the largest expenditure; property tax the main local revenue source.
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Review of public goods Two dimensions of public goods: I nonrival I nonexcludable. I examples (can make a 2 × 2 table, or a box): national defense, roads, park, education, light house, common goods (fish in the ocean), etc.
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Samuelson (1952) Classical Free Rider Problem I Efficient provision of public goods. n X i =1 MB i ( y * ) = MC ( y * ) . (1) I Equilibrium level must be lower. (Nash equilibrium) I Any solution? (no one is willing to reveal their preference.)
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local_government - Local Government Lecture Notes, Econ...

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