Imitation in location choice

Berg, Nathan (2008): Imitation in location choice.

Abstract

Under the assumption of perfect competition, it is difficult to avoid the conclusion that abandoned properties and long undeveloped neighborhoods remain that way because they are unprofitable. In contrast, this paper introduces a model in which firms systematically overlook neighborhoods with little commercial activity because of a positive informational externality motivating later movers to condition choice of location on earlier movers’ locations. When this occurs, firms sometimes find it profitable to imitate early movers’ locations even though privately acquired information suggests locating elsewhere. The model facilitates normative analysis of imitation in location choice by explicitly quantifying losses in aggregate efficiency following a shift from centralized to decentralized regimes. The model provides a tool for investigating the hypothesis of inefficient lock-in as it relates to neighborhoods in U.S. urban centers that remain underutilized despite the presence of profitable business prospects.

• Item Type: MPRA Paper
• Language: English
• Keywords: Imitation, Location, Ecological Rationality, Bounded Rationality, Lock-In, Neighborhood, Abandoned
• Subjects: R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R30 - General; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R14 - Land Use Patterns

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