A Game Changer for the Political Economy of Economic Development Incentives

Abstract

State and local governments have embraced their authority to offer economic development incentives for the purpose of attracting, retaining, or enhancing economic activity within their borders. Collectively, these programs represent an enormous, but largely overlooked, transfer of wealth from public entities to private firms. The increasing use of economic development incentives runs counter to the guidance offered by academic researchers. With their proliferation comes the increasing need for accountability in the decision-making process. The authors consider whether the duty of care standard used in corporate governance should be applied to the public decision-making context regarding economic development incentives.

Keywords: economic development incentives, political accountability, market accountability, municipal immunity, duty of care, business judgment rule, local governments – decision-making process, local governments – liability