4 ms·

Very basic game theory. Let's say there's 10 arbitrary 'units' of positive externalities, i.e. economic activity in a region, that comes from HQ coming to town

Very basic game theory. Let's say there's 10 arbitrary 'units' of positive externalities, i.e. economic activity in a region, that comes from HQ coming to town. If no subsidies/tax-breaks/etc. are allowed, then those 10 units go to some town, chosen by some other merit. The 'people' win with 10. If those 10 units are large in proportion to the marginal advantage a town has for selection (i.e. workforce availability, business fundamentals like logistics, etc.), then it's obvious what competing towns do: they offer up a slice of those 10 units. If town A offers 1 (keeping 9), town B can just offer 2, etc. So it's a race to the bottom, where nearly all the positive externalities are passed to the business in a bid to capture whatever remains. Even if you give up 9, it's worth it to have 1 vs. 0. This kind of competitive behavior is fundamental to markets, and is the reason why price is so very often right at the 'pain point' for buyers and sellers. The remaining question is whether those positive externalities (the jobs and economic activity a business can bring to a region) are rightly held by the people or by the business.

defertoreptar 8y ago
Competition lowers the price, but once the price becomes lower than the "profit point," let's say, then people generally don't agree to the deal. I'm not seeing where you show that people are making a deal against their interests.
sf_rob 8y ago
I wish I could remember the details, but one of the articles I read about this went a step further and suggested when the sell side is limited (a single company moving to a region like Amazon) and the benefits are hard to estimate (community utility) then the best bid will inevitably be deriving negative utility due to over-bidding. In your example, one city might bid 11 because they wanted to beat 9 and estimated the total utility at 13, not knowing it would be 10.

defertoreptar 8y ago

Competition lowers the price, but once the price becomes lower than the "profit point," let's say, then people generally don't agree to the deal. I'm not seeing where you show that people are making a deal against their interests.

sf_rob 8y ago

I wish I could remember the details, but one of the articles I read about this went a step further and suggested when the sell side is limited (a single company moving to a region like Amazon) and the benefits are hard to estimate (community utility) then the best bid will inevitably be deriving negative utility due to over-bidding. In your example, one city might bid 11 because they wanted to beat 9 and estimated the total utility at 13, not knowing it would be 10.