THE OPTIMAL PROVISION OF LOCAL PUBLIC GOODS IN A METROPOLITAN AREA WITH FLEXIBLE JURISDICTIONAL BOUNDARIES

ABSTRACT In this paper, we analyze the optimal structure of a monocentric city that has multiple jurisdictions. The cost of providing a public good depends on both the area of the jurisdiction and the quality of the service, both of which are endogenous variables. We show that the optimal quality of the public good decreases as distance from the central business district (CBD) increases if the public good and the housing lot are substitutes, and may increase if they are complements. The optimal population density always decreases as distance from the CBD increases.