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Employment Protection, Flexibility and Firms' Strategic Location Decisions under Uncertainty

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  • Gerda Dewit
  • Dermot Leahy
  • Catia Montagna

Abstract

We construct a model in which oligopolistic firms decide between locating in a country where employment protection implies costly output adjustments and in one without employment protection. Using a two-period three-stage game with uncertainty, we demonstrate that location is influenced by both flexibility and strategic concerns. The strategic effects under Cournot work towards domestic anchorage in the country with employment protection while those under Bertrand do not. Strategic agglomeration can occur in the inflexible country under Cournot and even under Bertrand, provided uncertainty and foreign direct investment costs are low.

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File URL: http://hdl.handle.net/10.1111/ecca.12006
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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 80 (2013)
Issue (Month): 319 (07)
Pages: 441-474

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Handle: RePEc:bla:econom:v:80:y:2013:i:319:p:441-474

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Cited by:
  1. Sophie Lecostey, 2012. "Permanent uncertainty, employment protection, and firms'location," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201240, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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