Without public goods and under fairly standard assumptions, in Hammond and Sempere (J Pub Econ Theory, 8: 145–170, 2006) we show that freeing migration enhances the potential Pareto gains from free trade. Here, we present a generalization allowing local public goods subject to congestion. Unlike the standard literature on fiscal externalities, our result relies on fixing both local public goods and congestion levels at their status quo values. This allows constrained efficient and potentially Pareto improving population exchanges regulated only through appropriate residence charges, which can be regarded as Pigouvian congestion taxes.
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Peter J. Hammond gratefully acknowledges generous research support from a Marie Curie Chair financed by the European Commission under contract no. MEXC-CT-2006-041121.
Most of the acknowledgements in Hammond and Sempere (2006) apply here also, including the disclosure that we are migrants ourselves. The choice of title is inspired in part by David Lodge’s novel Changing Places. Nor was it an accident that Hammond presented earlier versions of the paper to seminars in the Economics Departments of the University of Birmingham (“Rummidge”) and the University of California at Berkeley (“Euphoric State”). Our thanks to the members of those and numerous other seminar audiences.
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Hammond, P.J., Sempere, J. Migration with local public goods and the gains from changing places. Econ Theory 41, 359–377 (2009). https://doi.org/10.1007/s00199-008-0400-6
- Gains from trade
- General equilibrium
- Local public goods