Spatial allocation of capital: The role of risk preferences

Udo Broll, Antonio Roldán-Ponce and Jack E. Wahl

No 03/10, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: 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.

Keywords: spatial allocation; inter-regional disparity; risk aversion; prudence; regression (search for similar items in EconPapers)
JEL-codes: D81 R12 R30 R38 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:0310

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