Local Public Investment and Competition for a Firm

Bruno Jullien, Frederic Rychen and Antoine Soubeyran
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Frederic Rychen: GREQAM-IDEP

No 1400, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: Most of the work in the field of competition between jurisdictions for the attraction of a large plant focuses on financial offers, bids or tax holidays. In this paper we add to the competition game an initial stage in which jurisdictions can invest in an infrastructure capital to enhance their attractiveness and modify the outcome of the competition stage. We characterize the Nash equilibrium of this game. In an example we show how the parameters of the model change the outcome of the game. In particular, the size of a jurisdiction is a powerful attraction force for the firm but it can be bypassed by a well specialized infrastructure capital, even if the competing jurisdiction is big.

Date: 2000-08-01
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