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Spatial allocation of capital: The role of risk preferences

  • Broll, Udo
  • Roldán-Ponce, Antonio
  • Wahl, Jack E.
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    This paper considers a model of spatial allocation of investment capital under uncertainty. We demonstrate that the spatial concentration of economic activity depends upon properties of risk preferences deeper than risk aversion. The degree of so-called relative prudence unambiguously decides whether or not the diversi cation of income risk favours the geographic dispersion of economic activity. In our framework we relate risk diversi cation with economic integration. Then there exists risk preferences so that spatial concentration of industry and capital is not a ected by the degree of economic integration or segmentation of the regions. We also study the impact of net return regressibility upon spatial allocation.

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    Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 03/10.

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    Date of creation: 2010
    Date of revision:
    Handle: RePEc:zbw:tuddps:0310
    Contact details of provider: Postal: 01062 Dresden
    Phone: ++49 351 463 2196
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    8. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
    9. V.N. Balasubramanyam, 2008. "Foreign Direct Investment," Chapters, in: International Handbook of Development Economics, Volumes 1 & 2, chapter 39 Edward Elgar.
    10. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    11. Diego Puga, 2002. "European regional policies in light of recent location theories," Journal of Economic Geography, Oxford University Press, vol. 2(4), pages 373-406, October.
    12. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    13. Shu-hen Chiang, 2009. "The effects of industrial diversification on regional unemployment in Taiwan: is the portfolio theory applicable?," The Annals of Regional Science, Springer, vol. 43(4), pages 947-962, December.
    14. Bernard Fingleton, 2008. "A Generalized Method of Moments Estimator for a Spatial Panel Model with an Endogenous Spatial Lag and Spatial Moving Average Errors," Spatial Economic Analysis, Taylor & Francis Journals, vol. 3(1), pages 27-44.
    15. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2006. "Agglomeration and Aid," CESifo Working Paper Series 1750, CESifo Group Munich.
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