Analyzing firm location decisions: is public intervention justified?
Raymond Owens and
Pierre Daniel Sarte ()
No 99-08, Working Paper from Federal Reserve Bank of Richmond
This paper develops a two-region model of firm migration where moving is costly and firms have market power. In this setting, the decentralized equilibrium generates excessive inertia in firm movement relative to the 'first best' solution. Because the decentralized solution is inefficient, the widespread notion that inducing firm movement between regions yield no net social gain does not necessarily hold. That is, firm migration does not amount to a 'zero sum.' Moreover, given the presence of inertia, and contrary to the prevalent view, we show that targeted subsidies that alleviate moving costs can lead to a 'second best' outcome. We also show that once a dynamic dimension is considered, moving cost subsidies, while potentially welfare improving in a present value sense, may nevertheless generate transitional welfare costs in the short run. Consequently, it may be especially misleading to mainly consider contemporaneous conditions in evaluating regional incentive programs.
Keywords: Industrial location; Regional economics (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://www.richmondfed.org/publications/research/w ... /1999/pdf/wp99-8.pdf (application/pdf)
Journal Article: Analyzing firm location decisions: is public intervention justified? (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedrwp:99-08
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Paper from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by ().