210 8: Rational Choice Th eory and Irrational Behavior
fully informed rational utility maximizers. All that’s needed is a critical mass to
make informed decisions and introduce the competitive pressures that deliver the
market’s benefi ts. Teske and his colleagues (709) mentioned Senator Paul Doug-
las’s oft -quoted remark that a competitive market could exist if only 10 percent of
consumers made rational, informed decisions. If this were so, where could that 10
percent be found in a local market for public services? Teske et al. recognized that
for most citizens it is rational to be ignorant about public services simply because,
at any given time, the average citizen is not making decisions based on issues re-
lated to local services and taxes. Th e exception might be actual movers. Teske and
his colleagues accepted that most people do not move because of dissatisfaction
with local tax-service packages but because of job or family considerations. None-
theless, movers would still have a high incentive to gather information as they
shopped for a house. If there were enough of these people, and if they gathered
enough information to make reasonable choices about tax-service packages, these
“marginal consumers” might be enough to create the competitive market condi-
tions suggested in the Tiebout model.
Teske et al. tested this proposition through surveys of people who had recently
purchased homes in Suff olk County, New York, and matched them with longtime
residents of that area. To test levels of knowledge, the researchers asked citizens
to rank their school district expenditures and taxes relative to other school dis-
tricts in the county. Th e results indicated that overall levels of knowledge were
very low, even though the study set a generous threshold for being considered
informed. Respondents were asked whether school taxes and expenditures were
above average, below average, or about average compared to other districts in the
county. Th ose who responded “average” were judged to be informed if they were
in one of the 50 percent of districts surrounding the mean. Using this criterion,
21 percent of residents were able to rank their schools accurately. Movers actu-
ally had less accurate information than nonmovers—24 percent of nonmovers
accurately ranked school taxes and expenditures versus 19 percent of movers.
When movers were separated into categories according to income, however, in-
formation levels in the high-income category jumped ahead of those of nonmov-
ers. High-income movers were accurate 28 percent of the time (Teske et al. 1993,
707). Teske and his colleagues reasoned that this subgroup—wealthy movers with
higher levels of information—might be enough to drive a market for public ser-
vices, create the pressures for effi ciency, and provide an empirical basis for the
microfoundations of Tiebout’s theory.
In a response to Teske et al.’s refi nement of the theory underpinning the Tie-
bout model, Lowery, Lyons, and DeHoog (1995) argued that it provided mar-
ginal, and quite possibly contradictory, evidence for the potential of public service
markets. Th ey argued that the threshold used to judge a respondent informed was
very low, the subset of “marginal consumers” small, and these results dealt with
education—the local government service with the highest community profi le. In
the region used for the Teske et al. study, education was even higher profi le than