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Local Economic Development as a Prisoners' Dilemma: The Role of Business Climate

Stephen Ellis and Cynthia Rogers
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Stephen Ellis: University of Oklahoma

The Review of Regional Studies, 2000, vol. 30, issue 3, 315-330

Abstract: We formally demonstrate the prisoners' dilemma fueling the incentives "arms race." Our simple game (1) includes only localities that are equivalent with respect to basic location requirements; and (2) explicitly models business climate. Localities are compelled to offer incentives despite potential drawbacks. If no other locality competes, a locality can win big; if others are competing, a locality can avoid big losses. Failing to compete sends a negative signal about a locality's business climate, so localities are compelled to give away the entire value of attracting the firm. The model provides a framework for investigating numerous aspects of interjurisdictional competition.

Date: 2000
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Handle: RePEc:rre:publsh:v:30:y:2000:i:3:p:315-330