The political economy of interregional competition for firms
Abstract
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.
Keywords
Median voter; Political economy; Subsidy competition
Cite as
Hopp, D., & Kriebel, M. (2019). The political economy of interregional competition for firms. Regional Science and Urban Economics, 79.Details
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
Published
Year
2019
Journal
Regional Science and Urban Economics
Volume
79
Language
English
ISSN
0166-0462
DOI
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