Prisoner's Dilemma

Idaho is caught in what Mercatus describes as a "prisoner's dilemma" - offering incentives out of fear that other states will lure away businesses, even though all states would be better off if none offered such incentives. This dynamic creates a race to the bottom, where states compete to offer increasingly generous subsidies, ultimately harming their own economic interests[18].

The Mercatus research explains that this dilemma arises from the structure of political incentives. Even if policymakers understand that subsidies are ineffective, they fear the political consequences of unilaterally disarming in this subsidy war. The result is a collective action problem where individual states act against their own best interests[19].

This prisoner's dilemma perfectly describes Idaho's situation. The state may feel compelled to offer subsidies to compete with neighboring states, even though this competition ultimately harms Idaho's economic interests. Breaking free from this destructive cycle would require coordinated action with other states or a willingness to potentially lose some high-profile business attractions in the short term for the sake of long-term economic health.