Fiscal Federalism and Competitive Bidding for Foreign Investment as a Multistage Game

40 Pages Posted: 17 Jul 2014

See all articles by Raghbendra Jha

Raghbendra Jha

Australian National University (ANU) - Australia South Asia Research Centre (ASARC); Crawford School of Public Policy

Hari Nagarajan

Institute of Rural Management Anand (IRMA)

Kolumum R. Nagarajan

Chennai Mathematical Institute

Date Written: July 16, 2014

Abstract

This paper models the behavior of states in a federal country wishing to attract foreign firms to locate within their own individual jurisdictions. The essential intertemporal character of this decision is modeled as a multi-stage game to attract such foreign investment in these states. It is found that, when states with unequal political or economic infrastructure compete, the resulting Nash equilibrium profiles are inefficient. Under certain conditions, states that have won once, can “allow” a rival to win in a subsequent stage. The resulting Nash Equilibrium is more efficient. If the option of “allowing” a rival to win is not available, then states may resort to “suicide” strategies defined as outcomes created by history of losses.

Keywords: Fiscal federalism, multi-stage games, suicide strategies

JEL Classification: C70, H73, H77

Suggested Citation

Jha, Raghbendra and Nagarajan, Hari and Nagarajan, Kolumum R., Fiscal Federalism and Competitive Bidding for Foreign Investment as a Multistage Game (July 16, 2014). Available at SSRN: https://ssrn.com/abstract=2466846 or http://dx.doi.org/10.2139/ssrn.2466846

Raghbendra Jha

Australian National University (ANU) - Australia South Asia Research Centre (ASARC) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 2683 (Phone)
+61 2 6125 0443 (Fax)

HOME PAGE: http://crawford.anu.edu.au/crawford_people/content/staff/acde/rjha.php

Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Hari Nagarajan (Contact Author)

Institute of Rural Management Anand (IRMA) ( email )

Anand - 388 001
India

HOME PAGE: http://https://www.irma.ac.in/ifaculty/facultydetails.php?fid=428

Kolumum R. Nagarajan

Chennai Mathematical Institute

92 G. N. Chetty Road
Chennai, 600017
India

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