Mises.org on State Economic Development.
Since I work in economic development, I see the costs and benefits of it up-close - and I think I can see this more clearly than most having training in economics.
I agree that it isn't the greatest possible solution. I further agree that there exists a prisoner's dilemma that largely is the reason that many State's pursue economic development and incentives. What I disagree about is that I don't necessarily think there is a better solution - ie, ED is a 2nd best option given that states face the prisoner's dillemma. The only other option is the feds stepping in to make such incentives illegal. And that ain't happening anytime soon (Cuno v. Daimler Chrysler anyone?)
I don't believe providing incentives to firms is a net negative - I do think it is useful, especially in the real world of market frictions and imperfect information. Further, while I am certain that governments overestimate the number of jobs created that wouldn't have already have been created abscent the incentive, I also think there is good reason to believe incentives do create jobs - if not for the sole reason of reducing startup costs and making the transition of an expansion or new site go smoother. So, while incentives may be a bit inefficient - they are likely a useful form of reduced taxation given the nature of the constraints faced by the government.