Choice By Hands And Feet:

Public goods are produced, or at least provided, by the government. They are funded by tax revenue, as it is understood that private demands cannot be ascertained. Because of non-rivalry in consumption, each member of the public can enjoy the whole of the provision of public goods, Because of impossibility of excludability of any consumer it is argued that each one does really enjoy the  consumption. But nobody would want to pay for its provisioning; everybody would like to free-ride.

Since I know that I shall be equally provided national defence (a national public good) or streetlight (a local public good) as I cannot be excluded, I need not reveal my true demand for them. Then, whatever revelation comes, comes by political process by showing  hands, by speaking out or by (secret) ballot. It is often argued that public goods may still be underprovided because of show of hands in most cases may not still reveal the true preference of the members. This is known as choice by hands or voting by hands. This was the position till mid-1950s.

Charles Tiebout however argued that there is distinction between national public goods and local public goods. In the case of local public goods there may be found a lot of heterogeneity of bundles of local public goods across local jurisdictions. Individuals may reveal their choice by moving with feet. If I find that level of sanitation, quality of roads, provision of primary health facilities or kind of schools in local jurisdiction (A) are not close to my liking and there exists another jurisdiction (B) which provides these local public goods according to my liking, I may prefer to move from jurisdiction (A) to jurisdiction (B). This phenomenon is often observed in a metropolis. This is known as choice by feet or voting with feet. There are many conditions for occurrence of voting with feet. For example, ideally, movement should be costless.

Though there will be some kind of competition among local jurisdictions to attract residents, there is likely to exist differentiation in tastes for local public goods vis-à- vis private goods as well within the bundles of public goods. Given a great heterogeneity among local jurisdictions, the predictable outcome is that individuals will move across to jurisdictions with people of similar tastes for local  goods and taxes (bads).

In refined models it will be shown that the guiding principle for individuals to stay in a jurisdiction or to move across another  jurisdiction will depend upon the net benefit derived from provision of local goods and taxes paid. The guiding principle for a  jurisdiction for welcoming individuals would be marginal cost of congestion, if it exists, and marginal benefit of taxation receipts.

Actually, it is more important from the viewpoint of movement of firms or attraction for investment, however, the framework  prominently developed in local public finance/ economics is from the angle of consumer-voter.