Working Paper: NBER ID: w4312
Authors: James E. Rauch
Abstract: When will an industry subject to agglomeration economies move from an old, high-cost site to a new, low-cost site? It is argued that history, in the form of sunk costs resulting from the operation of many firms at a site, creates a first-mover disadvantage that can prevent relocation. It is demonstrated that developers of industrial parks can partly overcome this inertia through discriminatory pricing of land over time, and empirical evidence is provided that they actually engage in such behavior. It is also shown that other aspects of developer land-sale strategy can be a source of information on the nature of interfirm externalities.
Keywords: agglomeration economies; city-industries; sunk costs; industrial parks; developer strategies
JEL Codes: R11; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| historical sunk costs (N73) | first-mover disadvantage (D43) |
| first-mover disadvantage (D43) | discouragement of relocation (R23) |
| developer pricing strategies (D49) | facilitation of relocation (J62) |
| historical sunk costs (N73) | inertia in relocation (J62) |
| developer strategies (L10) | relocation dynamics of industries (R32) |