Geography Reference
In-Depth Information
frequently as they change their input suppliers or their output markets.
Indeed, the relocation process itself usually incurs very significant costs,
such as the dismantling, assembly or re-assembly of equipment, the reloca-
tion of some existing staff and the hiring and training of entirely new staff.
Yet, the models described above assume that relocation costs are zero.
However, this assumption is made simply for reasons of analytical simplic-
ity and, importantly for our purposes, the conclusions from the models
are not particularly affected by this assumption. In fact, these relocation
costs can easily be incorporated within the above framework, by including
the annualized (mortgage payment equivalent) cost of such one-off fixed
relocation costs into our isodapane model. These extra costs obviously
mean that firms will only move when the factor cost variations of alterna-
tive locations also compensate for the additional relocation costs, as well
as the increased transport costs. In other words, in order to encourage
relocation the negatively-sloped equilibrium interregional wage gradient
will need to be increasingly steep the greater are such one-off relocation
costs. In addition, other elements of the transactions costs connected with
firm relocation are also related to information and uncertainty issues, to
which we will now turn.
3.3
THE LOGISTICS- COSTS LOCATION
PRODUCTION MODEL
Until now we have assumed that the prices of the input and output
goods given as
p
1
,
p
2
and
p
3
have no effect on the optimum location of the
firm. The reason is that the prices are assumed to be exogenously fixed,
such that the Weber optimum location is seen to depend entirely on the
quantities of goods
m
1
,
m
2
,
m
3
shipped and the transport rates
t
1
,
t
2
, and
t
3
involved in moving these goods. However, in reality, the prices of the
goods do play a critical role in the determination of the optimum location,
and this is because in practice firms make geographical shipment decisions
with regard to the size and frequency of shipments. Such decisions allow
for the fact that the firms face both the costs of transporting goods, but
also the costs of
not
transporting goods, that is, the costs of holding goods
as inventories. By taking these issues into account within a spatial frame-
work, all firms involved in producing or handling merchandise or physi-
cal goods have to optimize on the combined costs of transporting versus
the holding of goods, and this is the approach adopted by
logistics- costs
models (McCann 1993, 1996, 1998, 2001).
For firms producing and shipping physical commodities and goods, the
time
costs of distance are hidden in the costs of holding inventories. This is
