A CONJECTURAL VARIATIONS MODEL OF STRATEGIC RIVALRY IN STATE ECONOMIC-DEVELOPMENT POLICY

Using a conjectural variations model of strategic rivalry, the paper examines the implications of regional policies aimed at creating local employment, given that many regions are pursuing the same policies. Among its results is an explanation for the recent, dramatic shift in regional policy emphasis at the local level from traditional locational subsidy scheme to create jobs to policies that use the tax, expenditure, and regulatory authority of government to improve factor markets (primarily labor quality) and enhance the technological capabilities of the regions. The analysis illustrates that while regional locational subsidy competition is not necessarily a zero sum game, a strategy of using local public sector resources to enhance regional competitiveness, under some circumstances, is superior.