Exam 2, March 8, 2006
ECON 3320.001
Name ___________________________________________
SSN
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1. Read the article below and discuss the situation relative to the Tiebout Model – theoretically and in practice.
(20 points)
No Man's Land
By NANCY MARTINEZ
An area outside the city draws high-dollar homes, yet has no formal fire protection
Caller-Times, March 5, 2006
A trailer home burned here Feb.27, in a place known as No Man's Land - sandwiched between fire
districts, the responsibility of none. There are no hydrants in this 90 to 100 square miles of rural land, a
mix of affluent subdivisions and primitive colonias. The children there attend London Independent School
District. …
The Annaville Volunteer Fire Department was at the scene in 15 minutes…. They couldn't get there any
sooner…. And they didn't have to. … No Man's Land is not within any of their boundaries. … when an
emergency fire call is made, dispatchers call Flour Bluff Fire Department or Annaville Fire Department.
Those fire departments responded to 61 and 60 calls to that area last year, respectively. …The city of
Corpus Christi does not respond because it is out of the city limits.
London ISD officials … are concerned with response time, so they are trying to come up with a fire
protection agreement with the city of Corpus Christi. That arrangement includes a $350 per unit per hour
charge for services. … Development in the area means more people will live there without fire protection.
That risk means some insurance policies are more expensive. … Development in the area means more
people will live there without fire protection. That risk means some insurance policies are more expensive.
Will Deaton, State Farm Insurance agent, said most insurers use fire protection class ratings to price
home policies. The better the fire department, the lower the rating and price, he said. Deaton said
homes without fire protection likely would have the highest-rated class, in which policies could be as
much as 50 percent higher.
Roosevelt Martinez, who owns land in Santa Maria Acres, just a couple of miles from London ISD, said
there will be 55 homes priced $200,000-$320,000 built in his subdivision. Another developer, who asked
her name not be given, said she is in the process of trying to get a fire district in the area. … One
recommendation: citizens should start a new emergency services district that collects taxes and provides
fire protection. "It's up to the people. They need to do it."
2.
Voting:
a.
Explain what you learned about majority voting in Ch. 9, including when it doesn’t work. (10 points)
b. Assume the majority of residents in the area described in question #1 above are low income families
living in colonias, and few are currently registered to vote. Suppose the newer residents in the area those who live in large, expensive homes – start a voter initiative - “London’s Burning!” - to decide
whether to create a fire district. Use what you learned about voting in Ch. 9 to explain what outcome(s)
you would expect. (10 points)
c. Annaville has a population who are very much alike in most ways. Suppose the currently unincorporated
London area has a population with the same average income as Annaville. Why might a future
incorporated London end up with a higher level of public goods provision than Annaville? (10 points)
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ECON 3320.001
Exam 2, March 8, 2006
3. Suppose the leader of the “London’s Burning!” initiative says that creating a fire district with a station, two
fire engines, an EMT vehicle, and 4 trained crew members will cause the average house price to increase by
$10,000, an the average fire response time to decrease by 10 minutes. What, if anything, can be inferred
about the value of response time from this information? (10 points)
4. Suppose the leader of the “London’s Burning!” fire district initiative also says that the fire district’s four
new jobs will be a benefit to the London area. Is this correct? Why or why not? (10 points)
5. Suppose the fire district proposal is a success. Later the fire district applies for a federal Homeland Security
grant to add a fifth fire fighter and bomb disposal equipment, what Ch. 10 calls a conditional block grant.
a. Given what you learned in Ch. 10, what are the effects of this type of grant? (5 points)
b. How do the effects differ from those of a matching grant? (5 points)
6. Think about the rival and excludable properties of public goods.
a. To what degree is fire protection a public good? (10 points)
b. Why can the provision of fire protection be thought of as an externality problem? (10 points)
EXTRA CREDIT
Have you learned any concept in this section of the course on which I have not tested you? If so, demonstrate
your knowledge by applying it to a decision that might be faced by the London Independent School District or
the community it serves. (10 points)
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