In a recent post at EconLog, I discussed several phenomena that limit the effectiveness of electoral feedback. One of these is bundling. Each candidate in an election will have power to make policies that impact a wide variety of issues. Yet each citizen has just a single vote. So it’s not clear whether a vote expresses preferences about health policy, foreign policy, or any number of other policy arenas. Moreover, a voter might vote for a candidate whose foreign policy they dislike if they like the candidate’s health policy enough. This bundling means that electoral feedback is at best a very noisy signal about voters’ approval or disapproval of particular policies or actions.

Arnold Kling favorably quoted my post at his Substack, and made a very good point about how this bundling issue impacts not just electoral feedback, but also the feedback associated with interjurisdictional competition:

In the widely-unread Unchecked and Unbalanced, I point out another way that bundling distorts the market for government services. Your local government bundles together law enforcement, property zoning, schools, and other services. There is no way to opt out of the services that you do not like, or to go with alternative providers. The Tiebout hypothesis, which claims that people move to get the mix of governments services that they want, falls apart because of this market failure (among other reasons).

This is an excellent point! Bryan Caplan addressed similar issues in his recent plenary address at the Public Choice Society meetings, titled “Tiebout Was Wrong, but Why?”  While Kling focuses on problems of bundling, Caplan largely focuses on the proposition that “non-profit competition is far inferior to for-profit competition. The ‘competition’ between local governments is like an academic test that doesn’t count for your grade.”

Kling addresses issues related to bundling and what that means for the options that citizen-consumers have. Whereas Caplan largely addresses issues related to the fact that political decision-makers are not residual claimants and therefore face very different incentives than entrepreneurs in a market do.

It may be possible to address both of these issues, though doing so is somewhat radical. To address Kling’s concern, we could consider unbundling various aspects of governance and allowing for non-territorial entry and exit by citizen-consumers. Trent J. MacDonald proposes this and discusses the idea in detail in his excellent book The Political Economy of Non-Territorial Exit: Cryptosecession, which I reviewed for the Review of Austrian Economics.

As I explained in my review:

[MacDonald] draws from the literature on Tiebout competition but notes that Tiebout competition is limited by the costs of moving to a new geographical area. The costs of moving can render the quasi-market for governance and public goods effectively non-competitive. Moreover, public services are often bundled together. For example, in order to move to a school district they prefer, a family might move into a jurisdiction with police services they abhor. They cannot leave that police department’s jurisdiction while remaining in their preferred school district. Unbundling public services from one another and enabling non-territorial exit alleviates these related problems. If we can empower individuals to switch to a new provider of public services without requiring them to abandon the advantages of their current location, then this introduces far more meaningful competition. Likewise, if we unbundle services so that an individual’s choice of police services does not determine the educational services they receive, this too enables more competition.

So MacDonald specifically discusses unbundling and non-territorial exit as a way to address real-world limitations to Tiebout competition.

What about Caplan’s concerns about motivations, incentives, and residual claimants? Well, one thing that could be done is turning more local government services over to for-profit entrepreneurs operating in a competitive market. In the limit, this might take the form of market anarchism or anarcho-capitalism, in which even law and security are provided on the market!

There’s plenty of room for research on the sources of “quasimarket failure.”  Perhaps one way to alleviate these failures is to take the “quasi” out of “quasimarket”!