Agent-based modeling of the Tiebout hypothesis for 3 regions and 2 types of public services

Abstract

The article presents a cognitive model of the choice that residents do moving from one region to another, depending on their individual preferences for public services and actual services provided by regional administrations. The practical benefit of this model is the possible increase in the effectiveness of public administration at the central and regional levels by understanding the processes of why and how people move between territories. Effective satisfaction of heterogeneous preferences of the population requires the state to take a federative approach to the governance over its territories. The federal principles presuppose the decentralization of power that means that regions have degree of autonomy. The latter allows local bureaucracies to independently determine the parameters of public services, and fiscal federalism gives regions independence in the formation of territorial budgets. This condition forces jurisdictions to compete for the population: local bureaucracies become interested in pursuing policies that take into account the interests of the local population and create incentives for attracting desirable migrants. Individuals, choosing the jurisdiction of residence, in the words of Tiebout, "vote with their feet”. This is the essence of his hypothesis. In this paper we present a version of the mathematical formalization of the Tiebout hypothesis. Using the agent-based approach, a simulation model is constructed. The model includes regions that provide their residents with two types of public services and individuals seek to choose the jurisdiction that best suits their preferences. Agents in the model have individual functions of supply and demand. Each region, based on the preferences of its population, sets the price and volume for a public service. In search of an optimum, individuals move between regions, thereby creating a new choice situation for everyone.