Background A number of activities are primarily run at the state- and local-level Education Public safety Highways Public welfare
6 Background • A number of activities are primarily run at the state- and local-level. – Education – Public safety – Highways – Public welfare
Community Formation Think of communities as a club -a voluntary association of people who band together to share some kind of benefit
7 Community Formation • Think of communities as a club – a voluntary association of people who band together to share some kind of benefit
Community Formation Public park example Members of the club have identical tastes Can costlessly exclude nonmembers Will share equally the use of park and costs of park within the club
8 Community Formation • Public park example – Members of the club have identical tastes – Can costlessly exclude nonmembers – Will share equally the use of park and costs of park within the club
Community Formation For a park of a given size, the larger the club, the smaller the costs per person As more people join the club, congestion costs rise Community should expand membership until Marginal decrease in membership fee equals the marginal increase in congestion costs 9
9 Community Formation • For a park of a given size, the larger the club, the smaller the costs per person. • As more people join the club, congestion costs rise. • Community should expand membership until: – Marginal decrease in membership fee equals the marginal increase in congestion costs
Community Formation For a community of a given size, how large should the park be? Larger park yields greater benefits, but at a diminishing rate Community should expand park size until Each member's marginal benefit just equals the per-member marginal cost 10
10 Community Formation • For a community of a given size, how large should the park be? • Larger park yields greater benefits, but at a diminishing rate. • Community should expand park size until: – Each member’s marginal benefit just equals the per-member marginal cost