Title

Local Economic Development as a Game: We’re Caught in a Trap, I Can’t Walk Out …

Document Type

Working Paper

Publication Date

1997

College/Unit

Regional Research Institute

Document Number

9706

Department/Program/Center

Regional Research Institute

Abstract

This paper uses game theory to analyze the practice of offering incentives to attract new firms to localities. It demonstrates that in trying to attract firms localities are faced with something like a prisoner’s dilemma: they are compelled to offer incentives but would be better off if they could agree not compete for firms. The dilemma that localities face explains why the bidding war for firms continues to escalate despite calls by economists and politicians for disarmament.

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