Bidding for Firms: Efficiency VS Redistribution and Optimal Government Policy

Seminario de Investigación del IIEP

Bidding for Firms: Efficiency VS Redistribution and Optimal Government Policy

Expositor | Juan Manuel Escolar | MIT

What is the Federal government’s optimal regulation of regional competitions for firms? How does it depend on the heterogeneity of the firm’s profits across regions? And from the information structure of these profits available to the Regions? In this paper, I will show how regional competition for firms might generate welfare increases by allowing for efficient allocations, but at the expense of negative externalities generated by subsidy transfers. I will show that the Federal government’s optimal policy partially restricts or forbids competition entirely. I analytically and numerically characterize how increased regional profit heterogeneity and reduced information availability strictly decrease the optimal subsidy cap, intensifying the government’s incentive to restrict competition.

Lugar | FCE-UBA | Aula 237