Bidding for industrial plants : does winning a "million dollar plant" increase welfare?

2004·2.9 MB·English

by  Greenstone, Michael, 1968-

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DEWEY
Massachusetts Institute of Technology
Department of Econonnics
Working Paper Series
Bidding for Industrial Plants: Does Winning a
"Million Dollar Plant" Increase Welfare?
Michael Greenstone
Enrico Moretti
Working Paper04-39
November, 2004
RoomE52-251
50 Memorial Drive
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Cambridge, 02142
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http://ssrn.com/abstract=623122
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BiddingforIndustrial Plants:
DoesWinninga 'Million DollarPlant' IncreaseWelfare?
Michael Greenstone
MIT,AmericanBarFoundationandNBER
EnricoMoretti
UniversityofCalifornia, BerkeleyandNBER
November2004
WethankAlbertoAbadie,Michael Ash,Hal Cole,DavidCard,Gordon Dahl,ThomasDavidoff,Michael
Davidson, RajeevDehejia, StefanoDeliaVigna. Mark Duggan,Jinyong Hahn, RobertHaveman, Vernon
Henderson, Ali Hortacsu, Matthew Kahn, Tom Kane, Brian Knight, Alan Krueger, Steve Levitt, Boyan
Jovanovic, David Lee,Therese McGuire, DerekNeal, Matthew Neidell. AvivNevo, 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 forvery 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.
MorettithankstheUCLASenateforagenerousgrant.

BiddingforIndustrialPlants:
DoesWinning a 'MillionDollarPlant* IncreaseWelfare?
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 Ihe corporate real estate journal Site
Selection includes anarticletitled "TheMillion DollarPlant" that reports the county wherea large plant
chose to locate(i.e.,the'winner'),aswell astheoneortworunner-upcounties(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 ofthe 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
winningcounties,aswellas increasedearnings inthesameindustry incountiesthatneighborthewinner.
Further,thereismodestevidenceofincreasedexpendituresforlocalservices,suchaspubliceducation.
Property valuesmay provide asummary measureofthe netchange in welfare, becausethecosts
andbenefitsofattractingaplantshouldbecapitalizedintothepriceofland. Ifthewinnersandlosersare
homogeneous, a simple model suggests that any rents should be bid away. We find a positive, relative
trend break ofapproximately 1.1-1.7% in property values. Since the winners and losers have similar
observables in advance ofthe opening announcement, the property value results may be explained by
heterogeneity insubsidies from higherlevelsofgovernment(e.g., states)and/orsystematicunderbidding.
Overall, the results undermine the popular view that the provision of local subsidies to attract large
industrial plantsreduceslocalresidents'welfare.
MichaelGreenstone EnricoMoretti
MITDepartmentofEconomics UniversityofCalifornia,Berkeley
50Memorial Drive, E52-359 DepartmentofEconomics
Cambridge.MA02142-1347 Berkeley,CA94720-3880
andNBER andNBER
mgreenst@,mit.edu [email protected]