Tiebout model

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The Tiebout model, also known as Tiebout sorting, Tiebout migration, or Tiebout hypothesis, was a concept developed by economist Charles Tiebout in his article "A Pure Theory of Local Expenditures" (1956). It is an example of a public choice theory model. Tiebout describes municipalities within a region as offering varying baskets of goods (government services) at a variety of prices (tax rates). Given that individuals have differing personal valuations on these services and varying ability to pay the attendant taxes, individuals will move from one local community to another until they find the one which maximizes their personal utility. The model states that through the choice process of individuals, jurisdictions and residents will determine an equilibrium provision of local public goods in accord with the tastes of residents, thereby sorting the population into optimum communities. The model has the benefit of solving two major problems with government provision of public goods: preference revelation and preference aggregation.

The Tiebout model relies on a set of basic assumptions. The primary assumptions are that consumers are free to choose their communities, enjoying perfect mobility and perfect information. This essentially means that they can move from community to community at no cost, and that they know everything they need to know about services provided by local governments and the tax rates of all local governments. The Tiebout model has been shown to be most accurate in suburban areas with many different independent communities.^{[citation needed]} Moving between communities in these areas tends to have the lowest costs, and the set of possible choices is very diverse. In areas subject to rural flooding, Tiebout sorting explains why more affluent residents live in communities protected by river levees, while poorer residents tend to live without those expensive and rarely utilized protections.