Is Economic Development Decision Making Rational?

Abstract

Evaluations of economic development programs have raised questions about the logic behind program design and the rationality of decision choices. In response, analysts have justified program choices and structure on the basis of a variety of organizational and political factors influencing decision makers. Although these explanations are consistent with observed outcomes, they are incomplete from a modeler's perspective. This article presents a model of the economic development process that generates seemingly irrational outcomes despite the assumption that all actors are maximizing agents. The key feature of this model is the recognition that economic development subsidy awards influence the likelihood that other firms will demand subsidies.