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Asymmetric information and location

Author

Listed:
  • Octavio Figueiredo

    () (University of Porto, CEMPRE)

  • Paulo Guimaraes

    () (Universidade do Minho, NIMA)

  • Douglas Woodward

    () (University of South Carolina)

Abstract

In empirical location research, the probability of opening a new plant depends on the relative level of profit that can be gained based on the site’s attributes compared with all other alternatives. Many studies implicitly assume that the decision maker evaluates the potential profit with identical knowledge regarding the impact of each area’s attributes on the profit function. Such an approach disregards the problem of asymmetric information concerning the choices. An investor may have a strong incentive to locate the investment in the local environment because there is greater certainty (and lower information costs) regarding business conditions. In this paper, new evidence emerges concerning the connection between uncertainty and the location decision. Adding a variable to account for the investor’s local area of business significantly improves the regression results. The coefficients for explanatory variables change strikingly in some cases. The evidence suggests that urbanization economies and major (urban) market accessibility may play a discernible role in reducing uncertainty and associated information costs when investors locate outside their local area of business. Finally, the paper conjectures that the importance of the local area of business variable may reflect social capital networks and related informational advantages found in the entrepreneur’s home environment.

Suggested Citation

  • Octavio Figueiredo & Paulo Guimaraes & Douglas Woodward, 2001. "Asymmetric information and location," NIMA Working Papers 11, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  • Handle: RePEc:nim:nimawp:11/2001
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    References listed on IDEAS

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    Cited by:

    1. Pinto, Ligia M. & Harrison, Glenn W., 2003. "Multilateral negotiations over climate change policy," Journal of Policy Modeling, Elsevier, vol. 25(9), pages 911-930, December.
    2. Ana Rute Cardoso & Priscila Ferreira, 2009. "The dynamics of job creation and destruction for university graduates: why a rising unemployment rate can be misleading," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2513-2521.
    3. Anabela Botelho & Ligia Costa Pinto, 2002. "Hypothetical, real, and predicted real willingness to pay in open-ended surveys: experimental results," Applied Economics Letters, Taylor & Francis Journals, pages 993-996.
    4. Aslan Zorlu & Joop Hartog, 2005. "The effect of immigration on wages in three european countries," Journal of Population Economics, Springer;European Society for Population Economics, pages 113-151.
    5. Elvira Lima & David K. Whynes, 2003. "Finance and performance of Portuguese hospitals," NIMA Working Papers 20, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    6. Pedro Portugal & Ana Rute Cardoso, 2001. "Disentangling the minimum wage puzzle: an analysis of job accessions and separations from a longitudinal matched employer- employee data set," NIMA Working Papers 9, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    7. Paulo Guimarães, 2002. "The state of Portuguese research in economics: an analysis based on publications in international journals," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(1), pages 3-25, March.
    8. Botelho, Anabela & Pinto, Ligia Costa, 2004. "Students' expectations of the economic returns to college education: results of a controlled experiment," Economics of Education Review, Elsevier, vol. 23(6), pages 645-653, December.
    9. Anabela Botelho & Lígia Costa Pinto & Miguel Portela & Antonio Silva, 2001. "The determinants of success in university entrance," NIMA Working Papers 13, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    10. Anabela Botelho, 2001. "Strategic behavior at trial-The production, reporting, and evaluation of complex evidence," NIMA Working Papers 14, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    11. Joao Cerejeira da Silva, 2002. "Identification of the Portuguese industrial districts," NIMA Working Papers 17, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    12. Elvira Lima & Teresa J. Esquerdo, 2003. "The economic costs of alcohol misuse in Portugal," NIMA Working Papers 24, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.

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