Do Better Contracts Make Better Economic Development Incentives?

This article analyzes recent municipal attempts to specify and enforce reciprocal obligations (e.g., job creation) for subsidized firms. In theory, these contractual mechanisms, by defining standards of performance and threatening the use of penalties, should induce subsidized firms to act in ways that promote the public's welfare. However, the public sector's inability to write complete and enforceable contracts with subsidized businesses weakens the prospects for mutual gain. Through a survey of local and state officials and textual analyses of redevelopment agreements and incentive contracts, I examine the reasons why contracts alone may not be able to hold firms to their promises.