This dissertation addresses critical limitations in the theory of economic competition between the American states. In doing so, it looks at the growing use of economic development incentives (or subsidies) by states. Specifically, extant theory is limited in its ability to predict differences across the states in incentive spending and oversight, and is limited in its assessment of the effect of incentives. Instead of pure competition between neighboring states, incentives are actually the product of a political process in which individual firms and business associations work closely with economic development bureaucrats and state legislators to develop policy. Meanwhile, other organizations struggle to gain access. The consequences of this process are that states increase their use of incentives in order to keep up competition for investment from desired industries. State officials also risk increasing economic inequality with their use of incentives. Despite lawmakers’ intention to create broad economic prosperity, economic development policy can merely reinforce existing political and economic advantages because of the policy process in which it is formulated. From the dissertation, scholars and practitioners can learn how to institute a more representative political processes and create more effective policy.