Bidding for the Cloud: Fiscal Competition and the Socialization of Infrastructure Costs

Christos A. Makridis

No 12894, CESifo Working Paper Series from CESifo

Abstract: Jurisdictions compete for mobile facilities, but utilities may recover supporting capital costs from customers outside the host. I develop a model of jurisdictional bidding in which sites differ in productive surplus, local benefits, infrastructure costs, and how much of those costs local residents bear. Cost socialization raises a jurisdiction’s willingness to win and can direct the project to a lower-welfare site. The firm and host may gain even as regional welfare falls. Its effect on cash subsidies is ambiguous because connection charges and rival bids also change. Cash caps induce substitution toward in-kind support and can worsen site selection. Charging the firm for net incremental costs, or assessing the host for costs imposed on outside customers, restores the efficient ranking when political benefits are common. With uncertain load, broader cost sharing raises committed and unused capacity. Numerical exercises show where these distortions are largest and when subsidy caps backfire.

Keywords: fiscal competition; business incentives; infrastructure; cost allocation; data centers; irreversible investment (search for similar items in EconPapers)
JEL-codes: H25 H71 H77 L51 L94 R38 (search for similar items in EconPapers)
Date: 2026
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