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Commitment, Efficiency and Footloose Firms


  • King, Ian
  • Welling, Linda


The authors consider dynamic competition between a small number of local governments to attract a single large plant. The surplus available in each location is unknown when the initial location decision is made. Two cases are considered: if all agents can commit to second period actions and if they cannot. Without commitment, initially the firm will discriminate against the region with the lower set-up costs. If first-period productivity is low, the firm may relocate and receive an ex post subsidy from a second region. Commitment decreases the expected total surplus and, if fixed costs are small, favors the firm. Copyright 1992 by The London School of Economics and Political Science.

Suggested Citation

  • King, Ian & Welling, Linda, 1992. "Commitment, Efficiency and Footloose Firms," Economica, London School of Economics and Political Science, vol. 59(233), pages 63-73, February.
  • Handle: RePEc:bla:econom:v:59:y:1992:i:233:p:63-73

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    References listed on IDEAS

    1. JuanJ. Dolado & Marcel Jansen & JuanF. Jimeno, 2009. "On-the-Job Search in a Matching Model with Heterogeneous Jobs and Workers," Economic Journal, Royal Economic Society, vol. 119(534), pages 200-228, January.
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    Cited by:

    1. Osiris Parcero, 2004. "Inter-region Competition for FDI," The Centre for Market and Public Organisation 04/100, Department of Economics, University of Bristol, UK.
    2. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
    3. Davies, Ronald B. & Ellis, Christopher J., 2007. "Competition in taxes and performance requirements for foreign direct investment," European Economic Review, Elsevier, vol. 51(6), pages 1423-1442, August.
    4. Ferrett, Ben & Hoefele, Andreas & Wooton, Ian, 2016. "Does tax competition make mobile firms more footloose?," CEPR Discussion Papers 11325, C.E.P.R. Discussion Papers.
    5. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 211-225, October.
    6. Kiymaz, Koray & Taylor, Leon, 2000. "Competition for foreign direct investment when countries are not sure of site values," International Review of Economics & Finance, Elsevier, vol. 9(1), pages 53-68, February.
    7. Jean-François Wen, 1997. "Tax Holidays and the International Capital Market," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(2), pages 129-148, May.
    8. Ying, Qianwei & Yang, Quanfa, 2007. "The role of information in the competition for FDI under uncertainty," Research in Economics, Elsevier, vol. 61(2), pages 62-70, June.
    9. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    10. Bruno Jullien & Frederic Rychen & Antoine Soubeyran, 2000. "Local Public Investment and Competition for a Firm," Econometric Society World Congress 2000 Contributed Papers 1400, Econometric Society.
    11. Parcero, O.J., 2007. "Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?," Regional Science and Urban Economics, Elsevier, vol. 37(6), pages 688-702, November.

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