LOCATING OUTSIDE A LINEAR CITY CAN BENEFIT CONSUMERS*

ABSTRACT We investigate the effects of restricting the locations of firms in Hotelling duopoly models. In standard location‐price models, the equilibrium distance between firms is too great from the viewpoint of consumer welfare. Thus, restricting the locations of firms and shortening the distance between them improves consumer welfare by reducing prices and transport costs. We introduce strategic reward contracts into location‐price models and find that, in contrast to the above result, restrictions on the locations of firms reduce consumer welfare. These restrictions reduce transport costs but increase prices by changing the strategic commitments of the firms.     

ENVIRONMENTAL POLICY AND COMPETITIVE STRUCTURE: IMPLICATIONS OF THE HAZARDOUS WASTE MANAGEMENT PROGRAM

The Resource Conservation and Recovery Act of 1976 (RCRA) assigns the Environmental Protection Agency responsibility for protecting the public from hazards created by industrial wastes. The Agency has understandably used its mandate to construct cradle to grave regulation of waste substances that pose health hazards. The regulations, however, are likely to hike costs of legal disposal by increasing the demand for disposal sites, while at the same time reducing the supply. The higher cost of disposal may give an advantage to larger, existing firms, may deter entry of new firms to both waste generating and disposal industries, and promote illicit disposal. RCRA therefore may have the paradoxical result of increasing public exposure to hazardous wastes.     

PREFERENCE HETEROGENEITY AND ECONOMIC GEOGRAPHY*

ABSTRACT We investigate the effect of preference heterogeneity between skilled and unskilled workers on agglomeration, and we identify a new source of dependence of equilibrium prices on the demand properties shaped by the inter‐regional distribution of workers. We find a new preference effect, and we show that when the intensity of skilled workers' preference for the modern good and its variety is strong enough, prices charged by firms may even increase when the mass of local firms increases, therefore acting as a new dispersion force when trade costs are low or as a new agglomeration force when trade costs are high.     

Hotelling Games with Three,Four, and More Players*

Abstract. This paper extends the interval Hotelling model with quadratic transport costs to the n‐player case. For a large set of locations including potential equilibrium configurations, we show for n > 2 that firms neither maximize differentiation—as in the duopoly model—nor minimize differentiation—as in the multi‐firm game with linear transport cost. Subgame perfect equilibria for games with up to nine players are characterized by a U‐shaped price structure and interior corner firm locations. Results are driven by an asymmetry between firms. Interior firms are weaker competitors than their rivals at the corners. Increasing the number of firms shifts even more power to the corner firms. As a result, there is too much differentiation from the social perspective if n ≤ 3, while adding firms leads to a level of differentiation in equilibrium below the social optimum.     

SPATIAL COMPETITION WITH LOCATION-DEPENDENT COSTS*

This paper investigates the behavior of spatially-competitive firms whose costs depend on their locations. Necessary and sufficient conditions for optimum locations are derived. Comparative-statistics analysis of the equilibrium shows that the responses of firms to changes in input and output transport rates depend on the properties of consumer demand curves or are ambiguous in sign.     

Digital gravity? Firm birth and relocation patterns of young digital firms in Germany

This paper analyses the spatial patterns of young (<10 years) digital firms in Germany between 2008 and 2017 on county level. Determinants of firm birth locations as well as relocations are considered jointly to understand differences in location choices within firms' life cycles. I match commercial register data of 107,321 firms with county-level administrative data to capture local characteristics. Using an OLS model with fixed effects, I find that the local knowledge base—that is, universities, research institutes, and colocated incumbents—are significant key determinants of digital firm birth when controlling for a host of local characteristics. My results indicate that for five firms per 1000 inhabitants, there is around one firm birth. Second, using a fixed effects gravity model for the analysis of relocations, I find that the most dominant explanatory factor for firm relocation across specifications is distance, that is, relocation costs. Relocation flows are more than twice as high to neighboring counties relative to other locations which shows that digital firms are not as footloose as their business model may suggest. Jointly, my results reflect economic activity's regional persistence, particularly for new firms. My paper provides evidence for policies targeting homogenous digital clusters based on strong colocation and that digital economic activity is not shifted over long distances, but the regional entrepreneurship capital is crucial for local growth.     

Product Differentiation and Location Choice in a Circular City*

Abstract. The paper analyzes spatial competition among firms that sell substitute and/or complementary products. The firms first choose locations on the perimeter of a circular city and then compete in quantities (à la Cournot). Both linear and convex (quadratic) transport costs are considered. In general, multiple location equilibria are encountered. Complete agglomeration, partial agglomeration, and complete dispersion are possible. Convex (quadratic) transport cost substantially shrinks the set of equilibria obtained under linear transport cost. In general, the results obtained for a larger number of firms selling complementary products are strikingly different from those obtained under a duopoly.     

Political Decoupling: Private Implementation of Public Policy

Where policy goals can be achieved through regulation of private firms, private provision of public services allows governments to separate public policies from their political costs by shifting those costs to the private sector. Over the past three decades, financial decoupling has emerged as a regulatory strategy for promoting conservation, especially in the energy sector. Decoupling refers to the separation of a firm’s revenues from the volume of its product consumed, which allows companies to pursue resource efficiency free from financial risk. Similarly, when private firms provide public services, they separate public policies from their political costs. This political decoupling allows governments to pursue controversial policies while avoiding their attendant political risks. Applied to environmental policy, this theory implies that potentially unpopular conservation policies are more likely to be adopted and succeed when implemented through private firms. As an initial test of the theory, we analyze California water utilities and their responses to that state’s drought from 2015–2017. Analysis shows that, compared with those served by local government utilities, private utilities adopted more aggressive conservation measures, were more likely to meet state conservation standards, and conserved more water.     

DOES AGGLOMERATION MATTER EVERYWHERE?: NEW FIRM LOCATION DECISIONS IN RURAL AND URBAN MARKETS*

We test whether commonly used measures of agglomeration economies encourage new firm entry in both urban and rural markets. Using new firm location decisions in Iowa and North Carolina, we find that measured agglomeration economies increase the probability of new firm entry in both urban and rural areas. Firms are more likely to locate in markets with an existing cluster of firms in the same industry, with greater concentrations of upstream suppliers or downstream customers, and with a larger proportion of college‐educated workers in the local labor supply. Firms are less likely to enter markets with no incumbent firms in the sector or where production is concentrated in relatively few sectors. The same factors encourage both stand‐alone start‐ups and establishments built by multiplant firms. Commuting decisions exhibit the same pattern as new firm entry with workers commuting from low to high agglomeration markets. Because agglomeration economies are important for rural firm entry also, policies encouraging new firm entry should focus on relatively few job centers rather than encouraging new firm entry in every small town.     

沉没成本、制度环境与企业出口地理动态

本文使用2002-2011年中国海关出口数据,探究成本视角下企业出口地理动态和作用机制。实证结果表明企业出口活动和邻近企业溢出均对企业在出口市场上的进入和退出存在显著双面性影响：企业出口活动不利于企业进入新市场,但利于企业继续留在国外已有市场中;邻近企业溢出为企业进入新市场创造了有利条件,但加快了企业从已有市场退出。本文还发现在市场化程度较低和政府干预程度较高的地区,企业出口活动和邻近企业溢出发挥的“双面性”影响明显。这意味地方制度环境能影响中国企业出口地理动态,塑造了企业出口的动机和策略。     

ECONOMIC GEOGRAPHY OF FIRMS AND SKILLED LABOR*

ABSTRACT This paper investigates the relationship between firm location and skilled‐labor location. While existing new economic geography (NEG) models could not explicitly analyze the relationship due to their assumptions, I construct a new NEG‐type model allowing for different location dynamics of firms and skilled labor for this objective. The main results are as follows. First, a relatively large pool of skilled labor attracts firms when trade costs are small, while it might repel firms when trade costs are sufficiently large. Second, assuming that skilled workers are mobile between regions, the model shows that skilled workers agglomerate faster than firms with decreasing trade costs. Third, the model supports the hypothesis that firms follow skilled labor rather than the reverse. These results are consistent to Indian and Chinese experiences, and some “creative‐class” or “skilled‐city” stories.     

CAN REGIONALIZATION OF LOCAL PUBLIC SERVICES INCREASE A REGION'S WEALTH?*

ABSTRACT. In the presence of agglomeration and congestion externalities the sequence of location choices made by firms results in an inefficient distribution of economic activity, since individual firms do not bear the congestion costs they impose on other firms. In this paper, we model the interaction of public authority service strategies and firm location choices. We show that a self-interested regional authority can effect a welfare-improving distribution of economic activity when compared with an economy without an authority or an economy with local authorities. However, we also show that the conditions under which the authority would induce a welfare enhancing distribution depends on the authority's strategic posture, as well as the nature and size of public subsidies for the authority. The conditions necessary for a regional authority to choose an efficiency enhancing strategy may be difficult to achieve.     

The Net Effects of Large Plant Locations and Expansions on County Employment*

This paper argues that the net economic impact of new firm locations or expansions is determined by a multitude of opposing forces. Using a unique database, I set out to evaluate the net effects of these opposing forces by looking at the net change in local employment and population arising from large (greater than 300 new jobs) firm locations or expansions in the State of Georgia. The analysis suggests that the employment multipliers associated with new firm locations are much less than one; that is, the net employment effect of a large firm opening is smaller than the gross employment impact. This result is consistent with other empirical economic impact studies, which find multipliers much smaller than those of typical input–output models, often less than unity, and a previous study showing little net effect of large plant openings. Expansions of existing establishments are shown to have substantial multiplicative effects, however, with an average employment multiplier of 2.0. I discuss possible reasons for differential impacts across new and expanding firms, focusing on the nature of the firms. Differences in net impact across industries and high‐tech versus low‐tech firms also is evaluated. I find that the impact of large firm locations or expansions on population in the resident county generally is negative, but positive for the broader region encompassing the county of location and its contiguous neighbors.     

Networks Mobilized to Access Key Resources at Early Stages of Biotech Firms: A Comparative Analysis in Two Moderately Innovative Countries

This paper investigates the networking behaviour of biotechnology start-ups in peripheral locations. The aim is to understand whether the conditions found in this type of environment introduce some specificities in the networking process, namely in network building and early mobilization to access key resources. The paper compares biotechnology start-ups in Portugal and in Southern Italy, focusing on relationships with research organizations and on the relevance assumed by international connections, and investigating the role played by entrepreneurs’ personal networks. The research identified some common features that diverge from the typical biotechnology start-up behaviour and can be regarded as firms’ adaptive responses to the conditions faced. Notwithstanding the frequent presence of close connections with local research organizations—that often play functions that go much beyond that of a knowledge source—the local environment is a lesser determinant for a substantial proportion of firms than would be expected in start-ups. A distinctive feature of these firms is an extensive reliance on foreign sources, for different purposes and from the very early stages. Entrepreneurs’ personal networks are found to be instrumental, both to identify and obtain knowledge in the vicinity and to support the establishment of more complex distant relationships.     

SPATIAL ENTRY DETERRENCE UNDER OLIGOPOLY*

ABSTRACT. This paper examines colluding, oligopolistic firms in a linear market. By assuming that rivals do not compete for consumers at their market boundaries, it is shown that an equilibrium exists without adopting a convex transportation cost function. Two price profiles are derived. The first describes firm prices in the absence of threatened entry. The second details profit-maximizing prices which forestall entrants. Given infinite relocation costs, threatened entry leads to price adjustments by the incumbent firms.     

Regional Specialization and Technical Leapfrogging

This paper investigates circumstances where a region loses its technological leadership after some major technological breakthrough. Input-output linkages between firms in a Cournot upstream industry and a perfectly competitive downstream industry create forces for agglomeration in particular locations, driving up prices of immobile factors. A new technology that is incompatible with the old will not benefit from these linkages and so is more likely to be established in locations with little existing industry due to lower factor prices. Furthermore, in some circumstances the old and new technologies may coexist.     

Local Fiscal Strategy to Retain Heterogeneous Firms

This paper is about the strategy of retaining unobservably heterogeneous firms attracted by unobservably valued outside alternatives. We prove that differentiating taxation and public good fiscal packages within one's own locale dominates offering the same packages to all firms. We rationalize the full range of observed practice by considering more than one type of firm, more than one type of fiscal instrument, and all kinds of utility in alternative locations, under asymmetric information. Mobile agents can earn rents under some conditions, and immobile agents earn rents under others. Ways to minimize budgetary exposure in tax wars and effects on the composition of local economies are discussed.     

Supplier linkages of foreign-owned manufacturing firms in the UK: the influence of entry mode,subsidiary autonomy and nationality

This article tests the hypothesis that the supplier linkages which subsidiaries of foreign-owned companies make with indigenous firms in the UK are influenced by entry mode, the amount of autonomy which is granted to the subsidiary which is established and the nationality of the parent company. Data were collected from foreign-owned firms in the UK and an ordered probit model with the change in supplier linkages as the dependent variable was devised and tested. The results provide support for the hypothesis in terms of entry mode and subsidiary autonomy, but not in terms of parent nationality. This study represents a new approach to the study of supplier linkages and integrates concepts and studies from both regional science and international business. Foreign-owned firms which entered the UK by means of a greenfield entry tend to have a relatively positive effect on the creation and growth of supplier linkages, whereas those which entered by way of a merger or acquisition tended to have a relatively negative effect on the growth of such linkages. This finding has important implications for academics and policy-makers alike. Although the potential impact which the creation of supplier linkages can make upon the host country's economy has long been recognised, little research has been undertaken to identify the key factors which affect such growth. With increased levels of globalisation it is important that governments are able to maximise the impact which foreign direct investment makes upon the economy of their countries.     

Asymmetric Entrant Locaiton with a Discrete Consumer Distribution: Spatial Price Discrimination Versus Mill Pricing

In this paper I examine the profit-maximizing locations of entrants. Suppose that firms practice spatial price discrimination and consumer locations are discrete, such as five equally spaced towns on a roadway. With completely inelastic consumer demand an entrant between two existing firms is often indifferent between the symmetric (central) location and a continuum of asymmetric (noncentral) locations. However, downward-sloping consumer demand often causes the entrant to strictly prefer either of two asymmetric locations to any other location. These results are very different from those found in mill-pricing (free-on-board or f.o.b.-pricing) models.     

Transport Costs and Rural Development

Innovations that reduce costs of transport from rural locations may also reduce transport costs to rural areas. As transport costs fall, producers can afford to concentrate and achieve economies of scale. This paper explains an initially negative, but ultimately positive, relationship between reductions in transport costs and rural development. A two-region general equilibrium model with firm and worker spatial mobility highlights the firm and household location implications of costly transport-service use by both industry and agriculture in the context of scale economies and product differentiation. The computable general equilibrium model is initialized and verified with a bi-regional social accounting matrix and then used for simulations. Changes in relative transport costs are shown to affect relative regional wage rates, thus also determining the location of "production-cost-oriented" firms.