The political economy of interregional competition for firms

Hopp Daniel, Kriebel Michael


Zusammenfassung
This paper studies interregional competition for a multinational firm when the bidding is decided by the median voter. We model the competition as an auction under full information between two asymmetric regions inhabited by low- and high-skilled individuals. We derive two results: First, the location decision is inefficient in most cases. Second, winning the auction is harmful for the region, if the political process and strong competition lead to subsidies which exceed the surplus created by a firm's location. This implies that restricting interregional competition for firms, e.g. regulating subsidies, may enhance welfare.

Schlüsselwörter
Median voter; Political economy; Subsidy competition



Publikationstyp
Aufsatz (Zeitschrift)

Begutachtet
Ja

Publikationsstatus
In press

Jahr
2019

Fachzeitschrift
Regional Science and Urban Economics

Band
2019

Gesamter Text