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Locational Flexibilities

(http://faculty.washington.edu/krumme/systems/flexibilities.html)


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How long is the long run?

The tables (below) and their component concepts are based on the conceptual distinction between different time horizons in the literature on economic adjustments, including locational adjustments. The common distinction between the no run (instant), short run and long run is expanded to include a "medium run" designed to make space for the typically particularly long adjustment leads and lags associated with new locations. Thus, we have the following adjustment categories:
  1. Instant adjustments have to make do with given supplies and (of course) given all other structures. Typically the market will respond through price changes only (inelastic supply).
  2. In the short run, given capital goods, locations and long-term contracts will tend to permit only the more intensive use of given resources (locations, plant, equipment & labor), e.g. through overtime work.
  3. In the medium run, locations are still given, but plant, equipment (possibly technologies) and local labor contracts can be adjusted (within constraints).
  4. Only in the long run can new locations (with search processes, site preparations, permit procedures etc.) be created (or exisiting ones abandoned).

Structure of Time Horizons in Locational Adjustments

S t r a t e g i e s
Time Horizons Use of Given Investments at Given Locations Investment Choices at Given Locations Location as Strategic Variable
Instant Adjustments fixed fixed fixed
"Short-run" variable fixed fixed
"Medium-run" variable variable fixed
"Long-run" variable variable variable

Definitions:

  1. "Adaptability" = Ability to achieve changes in output levels (or make other adjustments) within the constraints of given technologies without excessive cost penalties (also called "horizontal" or status-quo flexibility)
  2. "Flexibility" = Ability to shift between technologies and expand and reduce capital equipment relatively readily (quickly & inexpensively) in order to achieve changes in output levels or other adjustments (= in-situ flexibility)
    1. In-situ flexibility: Adjustment ability at particular locations involving capital investments
    2. Inter-situ flexibility: Adjustments involving differentiated capital (re-) investments at different corporate sites (capital shifts between existing establishments).
  3. "Locational Flexibility" = Ability to achieve adjustments in output levels or other facets by relocating whole establishments, opening new or closing existing establishments.

After Stigler (1939)


ADAPTABILITY
with endogenous payoff stability
IN-SITU FLEXIBILITY
(with secondary adjustment in-situ)
LOCATIONAL FLEXIBILITY
(with secondary adjustment in-situ)
ONE-LOCATION FIRM In-situ adaptability In-situ flexibility Limited locational flexibility:
  • Additional plant (thereby becoming multi-plant firm)
  • Relocation
  • Closure
  • MULTI-LOCATION FIRM Inter-situ adaptability Inter-situ flexibility Multi-locational flexibility
    A. Uniform response provisions across all establishments in a centralized corporate response structure Uniform adaptability (e.g. uniform technology) to be used selectively or uniformly Uniform flexibility (e.g. can all be expanded at same marginal costs) to be used uniformly or selectively [One could suggest that firms are able to make location decisions (among existing plants) without investment decisions by adapting in a locationally selective way to changing location conditions] Uniform shut-down ability of individual establishments

    uniform ability to establish sub-branches or "extended work benches" or to relocate

    B. Localized, selective response provisions (response ability "bundled" at selected locations); maximum adaptability or flexibility is built into one or a limited number of establishments: e.g. fluctuations of output are concentrated in certain plants in response to corporate rather than local considerations Some plants are more adaptable than others Flexibility bundled at specific locations (for localized response to corporate-level needs) Localized closure and shut-down ability

    Localized relocation ability (or ability to establish sub-branch locations)

    C. In a decentralized response structure, adjustments are tuned to local environmental requirements and changes in location conditions. Locally responsive adaptability Locally responsive flexibility Locally responsive closure, shut-down & relocation ability


    Literature:

    Helfgott, Roy B., "On the Demise of the Long Run," Journal of Economic Perspectives 3(4), Fall 1989, pp.149-52.

    Krumme, G., "Notes on Locational Adjustment Patterns in Industrial Geography," Geografiska Annaler, Series B, 51(1), 1969, pp.15-19.

    Krumme, G., "Flexibility Views in Industrial Location and Location Decision Theory," in: John Rees et al., eds., Industrial Location and Regional Systems. New York: J.F.Bergin Publ., 1981, pp.66-75.


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