Geography Reference
In-Depth Information
insights from psychology. These are known as behavioural theories, and
have also been applied to location behaviour. One of the key components
of behavioural theories is the concept of 'bounded rationality', and this is
originally most closely associated with the work of Herbert Simon (1952,
1959). Simon argues that in reality economic agents, whether individuals,
firms, or organizations, all have limited information, much of which is of
a partial nature and some of which is either conflicting or confusing. In
such conditions, all economic agents will adopt fairly basic, routine and
well-tried decision-making rules, which are often ad hoc or heuristic, in
order to arrive at the best decision. However, there is no guarantee that the
actual decisions made are indeed the best choices, because in the absence
of complete information they also depend on the heuristics of the decision-
making process itself. As such, Simon's work implies that in the real
world the limited information available to a firm itself limits the firm's
ability to be 'rational', at least in the narrowly-defined profit-maximizing
sense adopted by traditional microeconomics models. In the terminol-
ogy of behavioural theories, the ability of the agent to be rational is itself
bounded by the limited information available and the decision-making
process employed. This argument is particularly pertinent to the case of
firm location or relocation behaviour, because the costs involved in such
choices are often very high, and also because detailed cost and revenue
information defined according to geographical market areas is usually
very difficult to find.
A second key component of behavioural models follows the 'con-
flicting goals' critique of Cyert and March (1963) who focussed on the
decision-making processes inherent in large corporate organizations. The
key decision-making characteristic of these types of organizations is the
separation of ownership from decision-making, which implies that dif-
ferent groups within the organization may have different goals. If this
is indeed the case, then it is likely that the business objectives which are
pursued may well be very different from simply profit maximization. This
argument is based on the observation that different stakeholders within
modern MNEs - thus multiplant, multidivisional and multiproduct firms
- have different incentives and therefore may be pushed to pursue differ-
ent objectives. The lack of alignment of many of these objectives militates
against firms' decisions being based primarily on profit maximization. For
example, only shareholders strictly have a desire for maximum profits,
whereas directors' performance may be evaluated primarily in terms
of a firm's market share, sales managers' performance may be consid-
ered in terms of sales growth, production managers' performance may
be regarded primarily by inventory throughput efficiency, and human
resources managers may be assessed on the basis of the number of days
