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Firm Location and the Creation and Utilization of Human Capital

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Author Info
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

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 68.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:68

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Keywords: Location choice Human Capital Real Options

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Find related papers by JEL classification:
F1 - International Economics - - Trade
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location

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  15. Combes, Pierre-Philippe & Duranton, Gilles, 2001. "Labour Pooling, Labour Poaching and Spatial Clustering," CEPR Discussion Papers 2975, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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