What Price Development?

Posted on April 06, 2005
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During a recent conversation on the use of incentives to attract development, a group of economic developers acknowledged that incentives may not be a good idea all the time. But sometimes.

For instance, certain projects, they would say, are an obviously meritorious "investment" in the community and thus require the tools of incentives to make those projects happen. So project by project, we are asked to evaluate the merits of every project, through the inherently leaky process of political decision making, backed by undoubtedly cheery "feasibility studies" commissioned by rent seekers.

So let's take an obvious example: sports stadiums. Among economic developers, it's the holy grail of development - and for dilapidated urban areas, revitalization. Who would be so audacious as to suggest cities should forgo incentivizing, say, baseball for the sake of the community? Well, as it turns out, economists, in a rare showing of near unanimity believe baseball stadiums have either no effect on wages and income in a region, or when a significant relationship does exists, is actually negative. 

And so we are asked to have faith in the process (and a tool - incentives) that produces behemoth economic ankle weights as exemplars of economic progress. As Art Rolnick described the use of incentives generally: "Such policies lead to economic bidding wars and are counterproductive. The end result is that the public return on such investments is zero. And when the subsidy goes to high-risk businesses, ones that are likely to fail, the return can even be negative."

More information:
DC Fiscal Policy Institute
Southwestern Learning
Cato Institute
Sports, Jobs and Taxes

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