Models, Models and More Models

This chapter investigates the main approaches used to analyze competition for investment through investment incentives. We begin with general approaches to assessing the use of incentives, including Prisoners’ Dilemma, models in the Tiebout (1956) tradition, incentives as necessary to generate spillovers and the global vs. local efficiency matrix. Next, we move to a consideration of game theoretic models more complex than Prisoners’ Dilemma, either relaxing its assumptions or using a more general ‘subsidy game’. After that, the spotlight turns to statistical analyses of the effects of tax and incentives on investment. Finally, we survey significant case studies from both developed and developing countries.