Innovation, herd behavior and regional development

In our paper we want to investigate the question whether it will make sense for regions to compete for new high-tech industries to settle down in their region. The justification for giving subsidies is based on the general believe in politics that attracting high-technology firms will cause positive externalities in the sense of Arrow (1962) and of course will directly create working places and an additional tax revenue in the long run. Additionally, it is a general believe in politics that competition between regions will enhance the efficiency of local authorities and local administration. At the moment such new high technologies are bio-technology firms, ICT firms, nanotechnology firms etc.