Firm Location and the Creation and Utilization of Human Capital

Andres Almazan, Adolfo de Motta and Sheridan Titman

No 10106, NBER Working Papers from National Bureau of Economic Research, Inc

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 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.

JEL-codes: L2 R3 (search for similar items in EconPapers)
Date: 2003-11
New Economics Papers: this item is included in nep-geo
Note: CF LS
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Citations: View citations in EconPapers (6)

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.

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