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

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  • Ellis, Stephen

    (University of Oklahoma)

  • Rogers, Cynthia

    (University of Oklahoma)

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.

Suggested Citation

  • Ellis, Stephen & Rogers, Cynthia, 2000. "Local Economic Development as a Prisoners' Dilemma: The Role of Business Climate," The Review of Regional Studies, Southern Regional Science Association, vol. 30(3), pages 315-330, Winter.
    • Handle: RePEc:rre:publsh:v:30:y:2000:i:3:p:315-330
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    References listed on IDEAS

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    Cited by:

    1. Carlianne Patrick, 2014. "The economic development incentives game: an imperfect information, heterogeneous communities approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 137-156, August.
    2. Wang, Jia, 2018. "Strategic interaction and economic development incentives policy: Evidence from U.S. States," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 249-259.
    3. Raghbendra Jha & Hari K. Nagarajan & Kolumum R. Nagarajan, 2013. "Fiscal Federalism and Competitive Bidding for Foreign Investment as a Multistage Game," Departmental Working Papers 2013-04, The Australian National University, Arndt-Corden Department of Economics.
    4. Mitchell, Matt & Farren, Michael & Gonzalez, Olivia & Horpedahl, Jeremy, 2019. "The Economics of a Targeted Economic Development Subsidy," Annals of Computational Economics, George Mason University, Mercatus Center, November.
    5. Peter Calcagno & Frank Hefner, 2018. "Targeted Economic Incentives: An Analysis of State Fiscal Policy and Regulatory Conditions," The Review of Regional Studies, Southern Regional Science Association, vol. 48(1), pages 71-91, Spring.
    6. Jia Wang & Weici Yuan & Cynthia Rogers, 2020. "Economic Development Incentives: What Can We Learn From Policy Regime Changes?," Economic Development Quarterly, , vol. 34(2), pages 116-125, May.
    7. Jia Wang & Stephen E. Ellis & Cynthia Rogers, 2018. "Income Inequality and Economic Development Incentives in US States: Robin Hood in Reverse?," The Review of Regional Studies, Southern Regional Science Association, vol. 48(1), pages 93-117, Spring.
    8. Eathington, Liesl & Todd, Aaron L. & Swenson, David A., 2005. "Weathering the Storm of Business Climate Rankings," Staff General Research Papers Archive 13157, Iowa State University, Department of Economics.
    9. Carlianne Patrick, 2014. "Does Increasing Available Non-Tax Economic Development Incentives Result in More Jobs?," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(2), pages 351-386, June.
    10. Calcagno, Peter T. & Hefner, Frank L., 2007. "State Targeting of Business Investment: Does Targeting Increase Corporate Tax Revenue?," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 37(2), pages 1-13.
    11. Mark Drabenstott, 2005. "A review of the federal role in regional economic development," Monograph, Federal Reserve Bank of Kansas City, number 2005arotfrire.
    12. Carlianne Patrick, 2016. "Identifying The Local Economic Development Effects Of Million Dollar Facilities," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1737-1762, October.
    13. Shaoming Cheng & Hai (David) Guo & Cathy Yang Liu, 2020. "Incentivized for Leveling the Playing Field: Do State Economic Incentives Compensate for High Taxes?," Economic Development Quarterly, , vol. 34(2), pages 101-115, May.

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