Economic interpretation of lg

Economic Interpretation Of LG

According to this approach, individuals are assumed to choose their place of residence by comparing package of services and taxes on offer by different municipalities.

People choose a place that affords the greatest net advantages.

If he is dissatisfied with benefits from local authority, moves to another locality where the level of and mix of service relative to taxes come closer to his preferences.

The Public choice approach proceeds from the assumption that a diversity of individual preference needs to be matched by diversity of goods and services. Unlike privet goods, local government goods and service are collectively enjoyed, so that one’s consumption does not prelude another’s.

Two problems of public provision of goods and service which is overcome by public choice principles.

1) Responsiveness: The problem of responsiveness is here seen as one of the determining community wide demand in the absence of competitive pricing.

2) Efficiency: The test of efficiency is weather local governments actually supply goods and service that people prefers, in the absence of measures of consumer satisfaction.

On demand side, whereas in privet markets consumer preference is indicated by willingness to pay, in political system it has to be expressed through voting, lobbying, petition, opinion polls etc.

Different citizens have different opportunities for expressing preference.

Also different groups may pay different “price”.

Demand Side

Public choice approach of local government reduce these problems by increasing specialization of functions.

Smaller jurisdiction are said to create large benefit to the individual than larger units of government.

Solution

On the supply side there are many problem allocative efficiency with collective goods

High costLack of economy and innovationLimited range

Supply Side

In such situation a diverse range of jurisdiction is preferable

Encouraging rivalry between fragmented and overlapping authorities than the consolidated local authority

The assumption is that public goods and service have different production characteristics compared to their private counterparts.

Solution

The theory prescribes a small jurisdiction but ignore the fact of externalities.

To many groups for whom public services are especially important (because they can’t afford private provision say education, health care) the intention to move from another locality in case of service and taxes is meaningless

Land use zoning is often used by richer communities to restrict the access to the poorer migrates, and so further undermine the assumption of the theory.

Limitations

Demand in politics generally is affected by many different factors, such as ideology, socialization education level etc.