Input Price Variation Across Locations and a Generalized Measure of Cost Efficiency
We propose a nonparametric model for global cost minimization as a framework for optimal allocation of a firm's output target across multiple locations, taking account of differences in input prices and technologies across locations. This should be useful for firms planning production sites within a country and for foreign direct investment decisions by multi-national firms. Two illustrative examples are included. The first example considers the production location decision of a manufacturing firm across a number of adjacent states of the US. In the other example, we consider the optimal allocation of US and Canadian automobile manufacturers across the two countries.
|Date of creation:||Mar 2008|
|Date of revision:|
|Note:||The authors are grateful to William W. Cooper for insightful comments and suggestions for improvement on an earlier version of the manuscript. Responsibility for errors remains with the authors.|
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