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From Neighborhoods to NationsThe Economics of Social Interactions$
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Yannis M. Ioannides

Print publication date: 2012

Print ISBN-13: 9780691126852

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691126852.001.0001

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Location Decisions of Firms and Social Interactions

Location Decisions of Firms and Social Interactions

(p.148) Chapter 4 Location Decisions of Firms and Social Interactions
From Neighborhoods to Nations

Yannis M. Ioannides

Princeton University Press

This chapter examines the impact of social interactions on firms' location decisions, focusing on the effects of proximity to other firms, the size of the total urban economy, the availability of a suitable labor force, and risk pooling. It first introduces models that take into account the location of firms under uncertainty, with particular emphasis on the role of site rents in guiding location decisions and the problems that site rents encounter in the presence of more complex economic geography. The model is expanded to allow for randomness in firms' evaluations of alternative sites and for interdependence among firms' location decisions. The model is also extended to a framework for defining empirical measures of agglomeration, and the chapter concludes with a review of empirical studies that explore localization or urbanization effects via the measurement of total factor productivity at the plant level.

Keywords:   social interactions, location decisions, urban economy, risk pooling, firms, localization, agglomeration, site rents, urbanization, total factor productivity

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