We investigate how the number and size of local political jurisdictions in an area is determined. Our model focuses on the tradeoff between the benefits of economies of scale and the costs of a heterogeneous population. We consider heterogeneity in income, race, ethnicity, and religion, and we test the model using American school districts, school attendance areas, municipalities, and special districts. Using both cross-sectional and panel analysis, we find evidence of a significant tradeoff between economies of scale and racial heterogeneity. We find weaker tradeoffs between economies of scale and income or ethnic heterogeneity. That is, it appears that people are willing to sacrifice the most, in terms of economies of scale, in order to avoid racial heterogeneity in their jurisdiction.
Published: Alesina, Alberto, Reza Baqir and Caroline Hoxby. "Political Jurisdications In Heterogeneous Communities," Journal of Political Economy, 2004, v112(2,Apr), 348-396.
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