Community composition and the provision of local public goods: A normative analysis

There is considerable evidence suggesting that the composition of the community – that is, the characteristics of the residents themselves – plays a central role in determining levels of important public outputs such as education and public safety. This paper explores the normative implications of this evidence. We show that optimal community composition involves a trade-off between the gains from homogeneity in demands among residents and the gains from heterogeneity in the production of those goods. The analysis establishes a role for equalizing intergovernmental grants on efficiency grounds: such grants can provide the needed incentives for sustaining heterogeneous communities.