THE WELFARE EFFECTS OF REGIONAL COMPETITION WITH INFRASTRUCTURE PROJECTS

Peter Stauvermann; Frank  Wernitz

Peter Stauvermann Changwon National University
Frank Wernitz International University of Applied Sciences Bad Honnef

Keywords: regional competition, infrastructure, regional development, subsidies

Abstract

In this paper, we analyze the competition between regions, where regions have the opportunity to invest in infrastructure to attract firms. Here we take airports as an example for infrastructural investment. We will show that in a model with two regions and monopolistic competition, the regional competition will lead to inefficiencies and bad investments, even though investments in airports are in general an important and useful public investment opportunity. However, the regional competition leads to oversized investments.

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