On the definition of W in empirical models of yardstick competition

Theoretical models of strategic interaction between local governments are often implemented empirically using spatial econometric techniques. In order to empirically discriminate between different theoretical explanations for strategic interactions, it is important to ensure that the spatial weights matrix <Emphasis Type="Bold">W reflects the theoretical mechanisms behind the interaction of interest. However, researchers do not usually have the information required to adequately define its elements in such a way. Here, we present a method for defining these elements that captures the interest of one jurisdiction’s inhabitants in the local politics of their neighboring jurisdictions even when this information is not directly available to the researcher. The method is suitable for use in empirical models of strategic interaction between local jurisdictions and can be used to define spatial weights matrices for spatial econometric models that will be used to test or control for yardstick competition across jurisdictions. Copyright Springer-Verlag Berlin Heidelberg 2014