From Volume 78, Number 4 (May 2005)
Clayton Gillette’s paper is very penetrating and full of insights regarding the incentives involved in the annexation decision and the effect of political arrangements on the outcome. My goal in these comments will be to provide a complementary formal analysis of some of the issues exposed by the paper, using a diagrammatic approach. This approach can clearly show the gains and losses from annexation that accrue to the various parties, as well as revealing whether an annexation is socially desirable in an overall sense.
The analysis depicts a number of different scenarios that might arise in an annexation, illustrating some of the cases mentioned in Gillette’s discussion. For example, annexation might be socially undesirable, reducing the combined surplus of annexees and city residents, while being narrowly beneficial to the latter group. By contrast, annexation may benefit both groups, thus raising social welfare. While any voting arrangement will yield the right outcome in the second case, some institutional setups (for example, only city residents vote) will lead to inefficient annexation in the first case.