Knowledge that Transforms

This paper examines interregional commodity trade in a "Tiebout Economy," that is, a many-region economy with perfect labor mobility and endogenous government decision making. For a model with scale economies in public good consumption, it is shown that any equilibrium is both Pareto efficient and asymmetric: regions containing the same types of individuals and production possibilities nevertheless differ in the traded goods which they produce and the public good levels which they provide residents.