Aspects of plant location theory under conditions of uncertainty

Abstract

The economics of space, particularly the theory of industrial location, has remained largely outside of the basic structure of classical (nonspatial) economic theory. This isolation stems from the fact that most of the literature on the location of economic activity has been formulated in socio-historical or economic-geography terms. It is claimed that the world of economic space is underscored by oligopolistic competition and, in turn, that oligopoly itself is marked by behavioral uncertainty. Only in this light can one view the underlying location forces in the space economy. The fundamental objective of this dissertation is to integrate location theory with microeconomics toward the end of constructing a general theory of plant location. In the process, the dissertation introduces uncertainty as a key variable and investigates the theoretical impacts and implications of this variable on optimum location decisions. By means of selected mathematical-economic tools, the Weberian least-cost model has been reconsidered and next generalized toward the end of determining how the optimum location site will change as base prices are changed and as transportation rates on inputs and final products are changed. The impact of a subsidy on inputs and final products, the different kinds of production functions which exist (i.e., economies of scale in production), the varying geographical sources of materials and markets, and demand conditions are also evaluated herein. As a result of this background study, the appropriate uncertainty variables are introduced (in the forms of production uncertainty and market demand uncertainty). It will be shown that the characteristics of the production function and the spatial structure of the transport cost function affect plant location differently under a state of uncertainty from that applicable to a world of certainty. By using comparative statics analysis, this dissertation takes further steps in the direction of generalizing the theory of intra-urban location and land use pattern by establishing testable propositions..