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Firm Location and the Creation and Utilization of Human Capital

  • Andres Almazan
  • Adolfo de Motta
  • Sheridan Titman

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 modify the scale of their operations. Extensions of our model 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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File URL: http://www.nber.org/papers/w10106.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10106.

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Date of creation: Nov 2003
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Publication status: published as Andres Almazan & Adolfo De Motta & Sheridan Titman, 2007. "Firm Location and the Creation and Utilization of Human Capital," Review of Economic Studies, Blackwell Publishing, vol. 74(4), pages 1305-1327, October.
Handle: RePEc:nbr:nberwo:10106
Note: CF LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
  2. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  3. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
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  5. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  6. Matouschek, Niko & Robert-Nicoud, Frédéric, 2003. "The Role of Human Capital Investments in the Location Decisions of Firms," CEPR Discussion Papers 3875, C.E.P.R. Discussion Papers.
  7. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," NBER Working Papers 3906, National Bureau of Economic Research, Inc.
  8. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
  9. Julio J. Rotemberg & Garth Saloner, 1990. "Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade," NBER Working Papers 3228, National Bureau of Economic Research, Inc.
  10. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May.
  11. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
  12. James E. Rauch, 1993. "Does History Matter Only When it Matters Little? The Case of City-Indu try Location," NBER Working Papers 4312, National Bureau of Economic Research, Inc.
  13. Pierre-Philippe Combes & Gilles Duranton, 2001. "Labor pooling, labor poaching and spatial clustering," LSE Research Online Documents on Economics 20103, London School of Economics and Political Science, LSE Library.
  14. Thomas J. Holmes & John J. Stevens, 2002. "Geographic Concentration and Establishment Scale," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 682-690, November.
  15. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  16. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  17. Helsley, Robert W. & Strange, William C., 1991. "Agglomeration economies and urban capital markets," Journal of Urban Economics, Elsevier, vol. 29(1), pages 96-112, January.
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