Coordinated action in local public goods models: The case of secession without exclusion

Abstract

This paper investigates threats of coordinated exit (secession) when coalitions cannot choose their members by exclusion. This is modeled by a three-stage noncooperative game in which voters choose a proportional tax rate and the level of public services, and may choose to exit jointly. A modified Perfectly Coalition-Proof Nash concept is applied to rule out dynamically inconsistent threats and behavior by coalitions that is not self-enforcing. The major result is that cooption of potential seceding coalitions will not occur. This result relies on the assumption that seceding coalitions cannot exclude potential members.