Peer Group Effects, Sorting, and Fiscal Federalism

No 91006, Working Papers from University of California-Irvine, Department of Economics

Abstract: Suppose that, other things equal, an individual's utility increases with the fraction of residents in his community who are rich. Suppose further that the rich are more willing to pay for a local public than are the poor Then the rich may over-provide a local public good, with the aim of dissuading the poor from moving into a community inhabited by the rich. We describe conditions under which the equilibrium will have mixed or homogeneous communities, and conditions under which the rich or the poor benefit from central government rules which constrain local decision making.

Keywords: Status; Migration (search for similar items in EconPapers)
JEL-codes: H73 R13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-05
New Economics Papers: this item is included in nep-mig, nep-pbe and nep-ure
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Journal Article: Efficiency, equilibrium and exclusion when the poor chase the rich (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:091006

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