Evaluation of Regional Development Policy—An Alternative Approach

As a theoretical basis for the evaluation of regional development policies which include capital subsidy in the form of low interest rate financing, we have the famous Borts's criteria. Borts's criteria, however, presuppose the existence of an immobile labor force as an idle resource in a specific region, and this assumption makes the criteria practically inapplicable to the situation of present-day Japan, where the interregional mobility of the labor force is extremely high. The only way to justify the meaningfulness of regional development policies which use subsidy in Japan is to take the nationwide dispersion of population as a supreme social-policy objective and to evaluate the relative cost-effectiveness of alternative economic policies instead of using the cost — benefit approach of Borts's criteria. In the present paper, different intervention policies to attain a desired distribution of population between two regions are compared from the point of view of social cost as well as from that of the amount of subsidy (or tax) needed.