Working Paper: NBER ID: w2657
Authors: Kyle Bagwell; Robert W. Staiger
Abstract: This paper explores the informational role of plant location decisions for the multinational enterprise. When information about costs is incomplete, the location of a plant will be chosen not only for its impact on actual production costs, but also for Its impact on the perception of costs as held by foreign rivals. We show that the latter consideration, which can arise only in the presence of asymmetric information about costs, may lead to a decision to multinationalize even though actual production costs are higher as a result. As such, the informational role of plant location decisions is a potentially important element in understanding the behavior of the multinational firm.
Keywords: multinational enterprises; plant location; asymmetric information; cost perception
JEL Codes: F23; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| plant location (R53) | actual production costs (D24) |
| plant location (R53) | perception of costs by rival firms (L11) |
| perception of costs by rival firms (L11) | strategic decisions regarding entry into foreign markets (F23) |
| actual production costs (D24) | multinationalization (F23) |
| plant location (R53) | multinationalization (F23) |