Competitive subsidization in regional development

This paper uses a game-theoretic bidding model to analyze the process in which regional areas attract new companies by offering subsidies. It is shown that this is not a 'negative-sum game', and that companies tend to locate in those regions for which they have the greatest value. A constructive methodology for quantifying the value of the firm to a region including both direct and indirect benefits is developed. A non-cooperative equilibrium bidding strategy is developed for competing regions which expands on some of the behavioral conclusions in Hands and Mann (1987). Dependent value estimates by the regions and the region's attitudes toward risk are shown to influence optimal bidding strategies for new companies.