Bidding for Industry

Bidding for Industry - Bidding for Industrial Plants: Does...

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Bidding for Industrial Plants: Does Winning a ‘Million Dollar Plant’ Increase Welfare? Michael Greenstone MIT, American Bar Foundation and NBER Enrico Moretti University of California, Berkeley and NBER November 2004 We thank Alberto Abadie, Michael Ash, Hal Cole, David Card, Gordon Dahl, Thomas Davidoff, Michael Davidson, Rajeev Dehejia, Stefano Della Vigna, Mark Duggan, Jinyong Hahn, Robert Haveman, Vernon Henderson, Ali Hortacsu, Matthew Kahn, Tom Kane, Brian Knight, Alan Krueger, Steve Levitt, Boyan Jovanovic, David Lee, Therese McGuire, Derek Neal, Matthew Neidell, Aviv Nevo, John Quigley, Karl Scholz, Chad Syverson, Duncan Thomas and seminar participants at Berkeley, Brown, Chicago, Columbia, Illinois, Michigan, NYU, NBER Summer Institute, Rice, Stanford, UCLA, Wharton, and Wisconsin for very helpful discussions. Adina Allen, Ben Bolitzer, Justin Gallagher, Genevieve Pham- Kanter, Yan Lee, Sam Schulhofer-Wohl, Antoine St-Pierre, and William Young provided outstanding research assistance. Greenstone acknowledges generous funding from the American Bar Foundation. Moretti thanks the UCLA Senate for a generous grant.
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Bidding for Industrial Plants: Does Winning a ‘Million Dollar Plant’ Increase Welfare? Abstract Increasingly, local governments compete by offering substantial subsidies to industrial plants to locate within their jurisdictions. This paper uses a novel research design to estimate the local consequences of successfully bidding for an industrial plant, relative to bidding and losing, on labor earnings, public finances, and property values. Each issue of the corporate real estate journal Site Selection includes an article titled "The Million Dollar Plant" that reports the county where a large plant chose to locate (i.e., the 'winner'), as well as the one or two runner-up counties (i.e., the 'losers'). We use these revealed rankings of profit-maximizing firms to form a counterfactual for what would have happened in the winning counties in the absence of the plant opening. We find that the plant opening announcement is associated with a 1.5% trend break in labor earnings in the new plant's industry in winning counties, as well as increased earnings in the same industry in counties that neighbor the winner. Further, there is modest evidence of increased expenditures for local services, such as public education. Property values may provide a summary measure of the net change in welfare, because the costs and benefits of attracting a plant should be capitalized into the price of land. If the winners and losers are homogeneous, a simple model suggests that any rents should be bid away. We find a positive, relative trend break of approximately 1.1-1.7% in property values. Since the winners and losers have similar observables in advance of the opening announcement, the property value results may be explained by heterogeneity in subsidies from higher levels of government (e.g., states) and/or systematic underbidding. Overall, the results undermine the popular view that the provision of local subsidies to attract large
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This note was uploaded on 12/26/2011 for the course ECON 245a taught by Professor Staff during the Fall '08 term at UCSB.

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Bidding for Industry - Bidding for Industrial Plants: Does...

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