Industrial Location Behavior and Spatial Evolution

Abstract

THE choice of a location for production is one of the most important long-run decisions that a manufacturing firm must make. The mainstream of thought dealing with this choice of location problem has evolved from the work of Weber [28]. It includes empirical work by 0. Lindberg [i6], Isard and Cumberland [I31, and Kennelly ['51. It also includes the theoretical work of Isard [I2] and Smith [2i]. The main concept is that a firm will locate at the least-cost or maximum profit location. This assumes, among other things, first, that the entrepreneur knows the exact cost of each of the factors of production. Second, it assumes that there will be no innovations that change the point of the 'best' location, since once the location is chosen, in most industries, the sunk costs can only be recovered through the long-run use of the location. It is obvious that neither of these assumptions is a close approximation of reality, and this has bothered several researchers, e.g. Stafford [22]. There is a second explanation of the location of manufacturing firms. It was first suggested by Alchian [i] and then elaborated by Tiebout [23]. Tiebout postulated that there are 'two possible polar views of the economic system: (i) economic activities adapt themselves to the society in which they are placed; (2) economic activities do not, out of ignorance, adapt themselves to the economic system, but those who are lucky are adopted by the system'.1 It is obvious that these two concepts, as stated, are not strictly dichotomous as Tiebout suggests, because there are different actors for the two definitions: for the first, the firm; for the second, the economic system. This leads to further confusion because it makes the 'economic system' a unit that can make location decisions. It also makes the terms hard to use in any discussion of firm behavior. Therefore two new terms will be introduced. Locationally decisive firms are those firms that adapt to their environment in a process of mutual adjustment. A given firm chooses a location on the basis of the best information available to it, that is, by adapting to the economic environment. The firm also attempts to rectify any problems it has with the chosen location by adapting the environment to the firm's needs. It will do this by using various economies of agglomeration. For example, an aircraft