Three essays in local public economics

The local public economics literature builds on traditional public economics by assuming that more than one government exists. This adds a different dimension, because people, capital, goods or information may now be mobile across jurisdictions. This dissertation investigates three different theoretical models containing a multiplicity of governments.;The first essay considers two adjacent cities that occupy a linear space. Each city produces a congestible public facility such as a park or a library and chooses the location and size that minimizes the transportation and congestion costs of its population. Neither city may block its facility from use by nonresidents. The analysis demonstrates that the threat that nonresidents may congest a facility causes each city to choose an inefficient location and size. However, if a central planner can choose either the size or location the equilibrium will be improved. A central planner can also use partial taxes and subsidies to improve the decentralized equilibrium.;The second essay develops a theoretical analysis of the equilibria between rent-seeking politicians and voters who face uncertainty over both the character of a politician and external shocks to the economy. Voters may observe outcomes in related regions to help reduce the uncertainty. This outside information unambiguously decreases the expected utility of dishonest politicians but does not necessarily benefit voters. These results call into question previous research that suggests that an increase in the number of local governments leads to greater efficiency.;The third essay studies the funding decisions of local pensions when the public is uncertain about the degree to which government leaders are committed to living in their current communities. The capitalization of pension funding into property values implies that politicians exhibiting high levels of intercommunity mobility will act more responsibly than they would in the absence of capitalization, but less responsibly than in a certain world. The uncertainty causes pension underfunding to be only partially capitalized into property values (at a rate endogenous to the model), and mobile politicians to underfund pensions. This is consistent with the real world observation that local pensions are frequently underfunded.