The political economy of interregional competition for firms

Daniel Hopp and Michael Kriebel

Regional Science and Urban Economics, 2019, vol. 79, issue C

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 (search for similar items in EconPapers)
JEL-codes: H23 H25 H31 P16 R11 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:79:y:2019:i:c:s0166046217302673

DOI: 10.1016/j.regsciurbeco.2019.103485

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