Individual production, community characteristics and the provision of local public services

Socioeconomic variables reflect differences in individual production functions for such commodities as a personal safety or education where both private goods and community characteristics are inputs to this production. Government activities are demanded because of their direct impact on community characteristics and indirect contribution to production. Since each activity affects many characteristics, efficient provision depends upon the proper consideration of the 'cross' effects of community activities on characteristics. Because production functions may differ across demographic groups, efficient provision depends upon community demographics and heterogeneity in equilibrium may result. A method for indexing public services using community characteristics is suggested, allowing the isolation of movements in prices and quantities from expenditure data.