Subsidy Competition as an Auction

Is subsidy-giving good policy? Researchers want to be able to evaluate the practice of offering discretionary subsidies, and compare this to counterfactual regimes with regulations on subsidies. In this chapter, I argue that the empirical auction framework is the appropriate lens through which to study subsidy competition. There are a few key benefits to the auctions approach. First, it is a close approximation of how state and local governments compete for firms. Second, the empirical auction toolkit is not very data intensive, yet still allows researchers to recover the distribution of governments’ willingness to pay for firms. Third, the policy counterfactuals of interest to researchers and policy makers necessitates a structural approach.