Basic Extensions

In the last chapter, it was shown that local governments may tend to implement subsidy differentials which favour mobile industries compared to immobile industries when there is conflict among the local governments. In this chapter, it will first be shown how such subsidy differentials can be re-interpreted in the context of social policy. Then it is investigated how robust the implications of the basic model are when some restrictive assumptions of the basic model are relaxed. This means that the role of some additional potential determinants for the size of non-cooperative subsidy differentials in favour of mobile industries is checked: How may a local government want to adjust such a subsidy differential if mobile and immobile industries differ with regard to market sizes, demand elasticities, profitabilities, and the productivities of abundant general and scarce local resources? And which effects may the degree of inter-industry substitution and the number of competing locations have on the size of the relative subsidization of mobile industries?