Subsidy Bidding Wars and the Structure of Multi-Plant Firms

VATT Institute for Economic Research Working Papers 115 (2019); ISBN 978-952-274-232-2

41 Pages Posted: 24 Jan 2019

See all articles by Simon Lapointe

Simon Lapointe

VATT Institute for Economic Research; Government of the Republic of Finland - VATT Institute for Economic Research

Pierre‐Henri Morand

Université d'Avignon

Date Written: January 22, 2019

Abstract

Governments spend large amounts of money to attract firms to their territory, often resulting from bidding wars against other regions. Previous papers show that such bidding wars can improve social welfare by allocating the investment to the regions that value it the most. In this paper, we depart from the usual assumption of exogenous, single-plant investment. We show that in this context, bidding wars incite the firm to allocate its investment strategically, by investing more and differentiating the plants. In turn, the firm receives larger subsidies. Despite these distortions, bidding wars may remain socially optimal, as in simpler models.

Keywords: subsidies, regional governments, bidding wars, multi-establishment firms, auctions

JEL Classification: D44, H71, H25, D21, L23

Suggested Citation

Lapointe, Simon and Morand, Pierre‐Henri, Subsidy Bidding Wars and the Structure of Multi-Plant Firms (January 22, 2019). VATT Institute for Economic Research Working Papers 115 (2019); ISBN 978-952-274-232-2 , Available at SSRN: https://ssrn.com/abstract=3320446 or http://dx.doi.org/10.2139/ssrn.3320446

Simon Lapointe (Contact Author)

VATT Institute for Economic Research ( email )

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Pierre‐Henri Morand

Université d'Avignon ( email )

74, Rue Louis Pasteur
337 chemin des Meinajaries
AVIGNON, PACA 84029
France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
36
Abstract Views
374
PlumX Metrics