Geography Reference
In-Depth Information
association with any decision to relocate. Sunk costs are the costs incurred
by a firm which cannot be recovered once a factor adjustment or an alter-
native investment has taken place. In the case of firm relocation behav-
iour, these sunk costs can often be very significant.
In contrast, if all or most of these costs can be easily recovered after
relocating, the firm will readily undertake relocation behaviour. For
example, if a firm's capital infrastructure and facilities can be dismantled
and re-assembled rapidly, or if a firm's labour can either easily be relo-
cated or new labour hired and trained quickly, then a firm will readily
use re-location as a competitive weapon, even though the up-front costs
associated with the relocation may still be very significant. Moreover,
many modern developments in commercial building technology, such
as 'turnkey' construction operations, pre-fabrication systems, modular
construction, real estate leasing services, and serviced-office provisions, as
well as the international harmonization and standardization of construc-
tion technologies, are all nowadays designed to facilitate the process of
firm relocation. These developments would therefore imply that many of
the potential sunk cost inhibitors to corporate relocation behaviour may
actually be becoming relatively less significant over time.
3.7.3
Alchian's Competitive Selection and Leader-Follower Location
Strategies
All of the behavioural location strategies discussed above suffer from the
weakness that, unlike the location models described in the previous sec-
tions, they do not of themselves indicate why a firm chooses a particular
location in the first place. In this sense the behavioural approach is not
prescriptive. It is therefore necessary to reconsider the simple profit-
maximizing location models in the light of the behavioural critique of
bounded rationality, imperfect information, conflicting goals and reloca-
tion costs, as these are all features which are particularly characteristic
of the spatial economy. In order to do this we can stand for the moment
aside from locational issues and consider the original competitive selection
argument of Alchian (1950) as applied to any form of rational optimiza-
tion model. We can then reconsider the Alchian argument specifically in
the context of location behaviour.
The Alchian approach is that the behaviour of firms in conditions of
uncertainty can be understood by discussing the relationship between a
firm and its environment. Here a firm's environment encompasses all the
agents, information, and institutions which are competing and collabo-
rating in the particular set of markets in which the firm operates. In the
Alchian's framework, we can characterize the uncertain economy by two
