Faculty of Economics and Business Administration Publications Database

Strategic Provision of Local Public Inputs for Oligopolistic Firms in the Presence of Endogenous Location Choice

Wellisch, Dietmar
Volume: 3
Number: 2
Pages: 175 - 189
Month: May
ISSN-Print: 0927-5940
Link External Source: Online Version
Year: 1996
Keywords: Local public inputs; Firm location; Oligopoly
Abstract: We develop a model in which two regional governments compete for a mobile oligopolistic firm by publicly providing local inputs. The central mechanism of our model is the interaction of an agglomeration advantage (partial non-rivalness of the local input) and an agglomeration disadvantage (fixed costs associated with the change of location of firms). We show that the central government provides an efficient level of local inputs and induces a spatially efficient allocation of firms. The decentralized provision of local inputs by regional governments, however, leads in most cases to an inefficient allocation.