Welfare-maximizing location versus profit-maximizing location

The purpose of this paper is to develop a welfare-maximizing location model for a regulated firm and then to compare it with a profit-maximizing model as set forth by previous location theorists. It will be shown that two otherwise identical firms harboring different objectives will have different patterns of industrial location.The authors would like to thank Professors Curtis Eaton and Stuart Mestelman for useful comments and suggestions.     

Agroindustry location under output price uncertainty

Although the location theory of industry has received much attention in the literature, Hsu (1997) has demonstrated that the theory developed to date is not applicable to an agroindustry, that is, the industry of processing the agricultural product. Recognizing that the complete analysis of Hsu (1997) has been conducted in a deterministic world, and that in an economy subject to spatial friction, market information about prices is often incomplete and costly, the firm, accordingly, faces many types of uncertainty in making its location decision. This paper attempts to develop systematically the theory of plant location for an agroindustrial firm under output price uncertainty. Our analysis shows that the presence of output price uncertainty has significant influence on an agroindustrial firm‘s location decision. Most pointedly, a risk-averse agroindustrial firm‘s choice of production location under output price uncertainty always differs from the one under certainty. It also demonstrates that in many respects, the implication of output price uncertainty for an agroindustrial firm is in sharp contrast to its non-agroindustrial counterpart. Received: November 1997 / Accepted: March 1998     

A simple model of the choice of transport mode and plant location

This paper tries to ascertain whether or not the profit-maximizing transport mode will be different from the welfare-maximizing one, and investigates the impact of endogenizing the choice of transport mode on the choice of location and input usage. It is shown that the results derived are critically dependent on the characteristics of the chosen production function as well as the specification of the transport cost structure. The model is particularly relevant in countries such as Taiwan, where transport regulation can play a crucial role in determining the location and output of certain industries.     

Agroindustry location under uncertainty: The effects of business taxes

This note employs a unifying approach to examine the impacts of various forms of business taxes on an agroindustrial firm's choice of plant location under uncertainty. It shows that, if the production function is homogeneous of degree one, then the lump-sum and proportional profit taxes are spatially neutral for any risk-averse agroindustrial firm operating with a random raw material price. For cases where the taxes are spatially non-neutral, unambiguous effects regarding an agroindustrial firm's locational response to the imposition of business taxes have also been provided. In addition, we demonstrate that the spatial effects of business taxes on agroindustrial firms differ sharply from their non-agroindustrial counterparts. Received: 5 December 2000 / Accepted: 11 January 2002 RID="*" ID="*" I would like to thank the Pacific editor and two anonymous referees for valuable comments and suggestions on an earlier draft.     

Demand,location, and the theory of production

This paper presents a profit-maximizing location model to investigate the impact of demand on the optimum location decision of a firm in the Weberian triangle. It will be shown that:(1) When the distance of the firm's location from the product market is held constant, the optimum location for the firm would be independent of the demand function if and only if the expansion path in input space is linear through the origin as demand varies;(2) When the distance of the firm's location from the product market is a decision variable, the optimum location for the firm would be independent of the demand function if and only if the production function is linearly homogeneous.I am grateful to Professor Bob Logan for helpful discussions, and especially Professor T.R. Lakshmanan for very valuable suggestions and comments. This work was partially supported by a 1987 Summer grant from the School of Management, University of Alaska Fairbanks     

On the optimal production and location of a labor-managed firm

This paper endeavors to introduce space into the theory of the Labor-Managed firm (LMF) and to investigate its optimal production and location decisions. It is shown that the degree of returns to scale plays a key role in the determination of optimal production and location for an LMF, in particular, that the optimal location of an LMF is farther away from (closer to) the market as compared to a profit-maximizing firm (PMF) if the production function is of increasing (decreasing) returns to scale. We also demonstrate that the optimum location of an LMF moves closer towards the market as demand increases, regardless of whether the production function is of increasing or decreasing returns to scale. This finding is in sharp contrast with that in a capitalist economy. Received: February 2000/August 2000     

Network facility-location models in Stackelberg-Nash-Cournot spatial competition

A hierarchical mathematical programming approach is combined with sensitivity analysis (of variational inequalities) to formulate a facility-location model for a firm competing on a discrete network. It is assumed that the locating firm will act as the leader firm in an industry characterized by Stackelberg leader-follower(s) oligopolistic competition. The othern competitors in this industry are assumed to act as Cournot firms that each operate under the Cournot assumption of zero conjectural variation with respect to theirn — 1 Cournot competitors. It is further assumed that then Cournot firms will react to the location/production/shipping activities of the Stackelberg firm. Therefore, when the Stackelberg firm makes its location, production, and shipping decisions it takes into account the reaction of then Cournot firms to its (the Stackelberg firm's) integrated location and distribution decisions. Specifically, a Cournot reaction function is developed and imbedded in the Stackelberg firm's profit-maximizing objective function to project the anticipated reaction of the Cournot firms to the Stackelberg firm's location decision.An earlier version of this paper was presented at the 37th North American Meetings, Boston, November 1990.     

Optimizing subsidies for the location of distribution centers

The paper introduces a three-level model of location. On the lowest level, customers purchase the good from a firm. On the next higher level, the firm will decide how many distribution centers it will establish and where these centers are to be located. In addition to its location costs, the firm’s location decision will also be guided in part by the subsidy offered by a regional planner. Finally on the highest level, the regional planner will use its own revenue that it derives from the firm’s economic activities to offer a subsidy to the firm. This subsidy is assumed to be based purely on economic, rather than political considerations. In other words, the regional planner’s objective is to maximize its revenue. The paper then formally constructs models for the firm and the regional planner and examines their relations. It turns out that the models can be combined and greatly simplified. Computational tests on a set of published data confirm the solvability of the model. They also reveal the strong decrease of the proportion of unmet demand as economic multipliers and/or prices increase. This also implies an increase in the subsidy that must be paid to the firm, as the regional planner wants to convince it to locate the number of centers it prefers at the sites it wants them to be. Additional tests investigate the effects that result from price and related demand changes in case of elastic demand.     

Production-location decision under duopoly with managerial incentives

The validity of the profit-maximizing assumption has long been doubted by many economists. One reason for the deviation from profit maximization that has been emphasized is the separation of ownership and management. This paper attempts to examine the spatial consequences of this separation under duopoly where managers compete in quantities, as in the Cournot model, and owners choose their managers' incentives and plant locations. A complete analysis, including the exclusion theorem, comparisons of optimal locations under the incentive equilibrium with those under profit-maximization, and comparative statics, is provided. It is demonstrated that the separation of ownership and management has significant implications for firms in relation to their location decisions. Received: October 2000/Accepted: August 2001     

Intrametropolitan FDI firm location in Guangzhou, China A Poisson and negative binomial analysis

As a novel type of industrial establishment in the era of globalization, foreign direct investment (FDI) has become a new driving force in the shaping of urban structure. To understand the current worldwide urban restructuring process, the location behaviour of FDI firms should be fully investigated. But few empirical studies on industrial location have been carried out at the intrametropolitan scale, probably due to the lack of disaggregated data and appropriate models. This study geo-references FDI firms by their postal codes and captures site attributes through cross-referencing firm distribution with other spatial coverage such as population statistics, land uses, and designated development zones. This paper argues for a Poisson and negative binomial model of firm location based on count-data and tests such a firm location model using the case of metropolitan Guangzhou, PRC. Results, in contrast to previous studies at the national and regional scales of this country, confirm that, at least statistically, intra-urban FDI firm location in the context of a transitional economy presents regularities that are explainable according to `rational' economic considerations of site suitability. Received: July 1997/Accepted: April 1998     

Industrial location and the divorce of management and ownership

An expense-preference model is the basis for the representation of professional management's interests and the consequent location of the firm's plant. In a linear space the model does not exclude intermedite locations, as is the case in profit-maximization models. On the basis of comparative statics analysis it is demonstrated that increasing the manager's share in the company profits induces him to choose locations closer to profit-maximizing locations. The plant's scale influences location and the plant's location influences factor proportions.The authors acknowledge with thanks help received from Technion V.P.R. Fund — Lawrence Deutsch Research Fund.     

Optimum firm location under factor-price uncertainty

This paper presents a cost-minimizing location model to investigate the theoretical impacts and implication of factor-price uncertainty on the optimum location decisions of the firm in linear space. It will be shown that increased input price uncertainty leads the firm to move its factory towards the site of the price uncertain input.This paper was written while I was a Visiting Scholar at Harvard University to which I am indebted for its hospitality.     

Multi-plant location with respect to uniform pricing

This study develops a model to determine the optimal location of plants producing a single product on a non-homogenous plain. The mutual interdependence of price, demand, production cost and transportation cost is taken into consideration. Under uniform pricing and an uneven distribution of demand, the objective is to determine the maximum-profit location. No direct method exists to find the profit-maximizing solution. Therefore, the number, size and location of plants are determined using a step-wise heuristic approach.     

Cournot oligopolistic competition in spatially separated markets: The Stackelberg equilibrium

Consider a two-stage non-cooperative Cournot game with location choice involving r firms. There are n spatially separated markets located at the vertices of a network. Each firm, first selects the location of a facility and then selects the quantities to supply to the markets in order to maximize its profit. Non-zero conjectural variation at the second stage in the model by Sarkar et al. (1997) is studied. When the demand in each market is sufficiently large, equilibrium in the quantities offered by each firm in the markets exists. Furthermore, each firm chooses to locate its facility at the vertices.Partially financed by Ministerio de Ciencia y Tecnología (Spain) and FEDER, grant BFM2002-04525-C02-01.Received: August 2002 / Accepted: May 2003     

Myopic spatial competition: Boundary effects and network solutions

Recent findings suggest that spatial competition studies should focus more on markets having numerous firms and realistic topologies. Eventually clarification is needed of the existence conditions and properties of multi-firm equilibria in network markets. This paper uses a traditional conjectures approach to examine long-run equilibria in a variety of one-dimensional markets. In all cases consumer demand is perfectly inelastic, price conjectures are exogenous, and (interior) firms show maximum locational differentiation. The attitude of firms is always myopic and never strategic, however. In a linear market the analysis discloses that firm price depends upon price in the counterpart circular market, a boundary effect, the spatial aggression of exterior firms, and the location of the firm. In a network market the analysis discloses that multiple equilibria occur and that the existence conditions for these equilibria depend upon both the geometric properties of the network and the price conjectures of the firms.     

The impact of revenue-neutral tax policy on plant location under price uncertainty

This research note incorporates price uncertainty into a production- location model and examines the impacts of a revenue-neutral tax policy on production and location decisions. In particular, it is shown that under an assumption of decreasing absolute risk aversion, a revenue-neutral rise in the marginal tax rate increases the firm's output and causes the firm to move its plant closer to (away from) the market center provided that the production function exhibits increasing (decreasing) returns to scale. Nevertheless, the plant location remains unchanged as a result of a revenue-neutral tax policy if the production function is constant returns to scale. A comparison between revenue-neutral and income or lump-sum taxes and hence some important policy implications are also provided in the analysis. Received: 1 March 1997 / Accepted: 18 May 1999     

Demand and location decision of a monopsonistic firm

This paper examines the impact of demand on the location decision of a monopsonistic firm in the Weber-Moses triangle with one output and two inputs. When the distance of the plant location from the product market is held constant and the expansion path is linear through the origin, the analysis shows that as demand for output increases, the monopsonist has an incentive to move the plant away from the monopsonized input market and towards other markets. When the distance of the plant location from the product market is a choice variable, the linearly homogeneous production function is not sufficient to ensure that the location decision of the monopsonistic firm is independent of the demand function. These results differ significantly from the well-established results in location theory where the firm is a price taker in all the input markets. Received: February 1996 / Accepted in revised form: September 1996     

Exclusion theorem in an efficiency wage model

This paper uses Shapiro and Stiglitzs (1984) efficiency wage model embodying the firms choice of location to show the existence of an optimal intermediate location without assuming a transport rate that increases with distance. Based on the viewpoint of Shapiro and Stiglitz, we demonstrate that the more time that the worker spends traveling to the plant, the higher will be the wage that the firm will need to pay to motivate the worker not to shirk. To avoid paying a higher wage, the firm may choose its optimal location at an intermediate rather than a polar location.We would like to thank two anonymous referees for very helpful comments and suggestions. Any remaining errors are entirely our responsibility.     

Firm relocation decisions in The Netherlands: An ordered logit approach

This article explores the determinants of firm migration in The Netherlands. First, based on the existing literature a theoretical framework is developed. Second, based on aggregate data firm relocation processes in The Netherlands are discussed in terms of numbers, sectoral composition, origins and destinations (regions), distance moved and employments effects. In the third part a formal model will be tested using individual data of firms. The relocation decisions of individual firms will be related to firm and location characteristics by means of an ordered logit model. The results indicate that the decision to relocate is mainly determined by firm internal factors and to a lesser extent by site related factors. Received 1 July 1999 / Accepted 28 November 1999     

Optimal zoning of a mixed duopoly

This paper studies the optimal zoning of a mixed duopoly when the objective function of the public firm is a weighted sum of its profits and social surplus. We find that a regulator may attain the optimal locations of both firms by restricting the location of the private firm only. There is no need to limit the location of the public firm. In contrast, in a private duopoly, the regulator needs to restrict the locations of both firms.