Bidding for Firms : An Asymmetric Auction Model of Interjurisdictional Competition

This paper analyzes firm-specific interjurisdictional competition as an auction. Before choosing a site, a firm solicits bids (i.e., subsidies, tax breaks) from several jurisdictions. Its costs differ across locations so, unlike in standard high-bid auction models, the seller (i.e., the firm) has preferences over who among the bidders (i.e., the regions) wins. Using mechanism design, it is shown that the firm’s optimal location decision rule solves a trade-off between subsidy extraction and cost minimization in a way that is inconsistent with total surplus maximization, so the firm’s location can be inefficient. Positive implications of the model are shown to be consistent with some recent stylized facts. Extensions of the basic model discuss the political economy of bidding and the impact of negative interjurisdictional spillovers from location decisions. Should bidding wars be banned? The model frames the current policy debate by suggesting that the policymaker typically faces an efficiency/equity trade-off. Whether or not location contests are positive-sum games from society’s standpoint hinges primarily on whether the local benefits from business locations vary sufficiently across locations to outweigh the welfare costs of interjurisdictional bidding.

本文将企业特定的辖区间竞争分析为一种拍卖形式。在选择厂址之前，一家企业会向若干辖区征集投标（即补贴、税收减免）。其在不同地点的成本存在差异，因此，与标准的高价拍卖模型不同，卖方（即企业）对投标者（即地区）中谁获胜存在偏好。运用机制设计方法表明，企业的最优选址决策规则以一种与总剩余最大化不一致的方式解决了补贴获取和成本最小化之间的权衡问题，所以企业的选址可能是无效率的。该模型的实证含义被证明与一些近期的典型事实相符。基本模型的扩展讨论了投标的政治经济学以及选址决策产生的辖区间负外部性的影响。是否应该禁止投标大战呢？该模型通过表明政策制定者通常面临效率/公平的权衡，为当前的政策辩论提供了框架。从社会的角度来看，选址竞争是否为正和博弈主要取决于企业选址带来的地方收益在不同地点之间的差异是否足以超过辖区间投标的福利成本。