An auction theoretical approach to fiscal wars

I examine a situation where a firm chooses to locate a new factory in one of several jurisdictions. The value of the factory may differ among jurisdictions and it depends on the private information held by each jurisdiction. Jurisdictions compete for the location of the new factory. This competition may take the form of expenditures already incurred on infrastructure, commitments to spend on infrastructure, tax incentives or even cash payments. The model combines two elements that are usually considered separately; competition is desirable because we want the factory to be located in the jurisdiction that values it the most, but competition in itself is wasteful. I show that the expected total amount paid to the firm under a large family of arrangements is the same. Moreover, I show that the ex-ante optimal mechanism that is, the mechanism that guarantees that the firm chooses the jurisdiction with the highest value for the factory, minimizes the total expected payment to the firm, and balances the budget in an ex-ante sense - can be implemented by running a standard auction and subsidizing participation.

Can You Home Again? Desertion and Control of Hometowns in Civil Wars

What allows an armed group in a civil war to prevent desertion? This paper addresses this question with a focus on control in the rearguard. Most past studies focus on motivations for desertion. They explain desertion in terms of where soldiers stand in relation to the macro themes of the war, or in terms of an inability to provide positive incentives to overcome the collective action problem. However, since individuals decide whether and how to participate in civil wars for multiple reasons, responding to a variety of local conditions in an environment of threat and violence, a focus only on macro-level motivations is incomplete. The opportunities side of the ledger deserves more attention. I therefore turn my attention to how control by an armed group eliminates soldiers’ opportunities to desert. In particular, I consider the control that an armed group maintains over soldiers’ hometowns, treating geographic terrain as an important exogenous indicator of the ease of control. Rough terrain at home affords soldiers and their families and friends advantages in ease of hiding, the difficulty of using force, and local knowledge. Based on an original dataset of soldiers from Santander Province in the Spanish Civil War, gathered from archival sources, I find statistical evidence that the rougher the terrain in a soldier’s home municipality, the more likely he is to desert. I find complementary qualitative evidence indicating that soldiers from rough-terrain communities took active advantage of their greater opportunities for evasion. This finding has important implications for the way observers interpret different soldiers’ decisions to desert or remain fighting, for the prospect that structural factors may shape the cohesion of armed groups, and for the possibility that local knowledge may be a double-edged sword, making soldiers simultaneously good at fighting and good at deserting.