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Firm Location and the Creation and Utilization of Human Capital

Author

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  • Andres Almazan
  • Adolfo De Motta

Abstract

This paper presents a theory of location choice that draws on insights from the incomplete contracts and investment flexibility (real option) literatures. We provide conditions under which human capital is more efficiently created and better utilized within industrial clusters that contain similar firms. Our analysis indicates that location choices are influenced by the extent to which training costs are borne by firms versus employees as well as by the uncertainty about future productivity shocks and the ability of firms to increase and decrease the scale of their operations. Extensions of our model allow us to consider, among other things, endogenous technological choices by firms in clusters and how behavioral biases (i.e., managerial overconfidence about their firms' prospects) can affect firms' location choices

Suggested Citation

  • Andres Almazan & Adolfo De Motta, 2004. "Firm Location and the Creation and Utilization of Human Capital," Econometric Society 2004 North American Winter Meetings 68, Econometric Society.
    • Handle: RePEc:ecm:nawm04:68
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    References listed on IDEAS

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    More about this item

    Keywords

    Location choice; Human Capital; Real Options;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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