Question: Assume that the towns of Belmont and Lexington have different
Assume that the towns of Belmont and Lexington have different demand curves for firefighters and can hire firefighters at the same constant marginal cost. Suppose that historically their state government has required the two towns to hire the same number of firefighters, but the state has recently decentralized decision making. Show that the gain in welfare from de-centralization is greater the more inelastic the communities’ demand curves, other things being the same.
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