Location theory

Location theory

Location theory is concerned with the geographic location of economic activity; it has become an integral part of economic geography, regional science, and spatial economics. Location theory addresses the questions of what economic activities are located where and why. Location theory rests — like microeconomic theory generally — on the assumption that agents act in their own self interest. Thus firms choose locations that maximize their profits and individuals choose locations, that maximize their utility.


While others should get some credit for even earlier work (e.g., Richard Cantillon, Etienne Bonnot de Condillac, David Hume, Sir James D. Steuart, and David Ricardo), it was not until Johann Heinrich von Thünen's first volume of Der Isolierte Staat in 1826 that location theory can be said to have really gotten underway. Indeed, the prominent regional scientist Walter Isard has called von Thünen "the father of location theorists. In Der Isolierte Staat, von Thünen notes that the costs of transporting goods consumes some of Ricardo's economic rent. He notes that because these transportation costs and, of course, economic rents, vary across goods, different land uses and use intensities will result with distance from the marketplace.

A German hegemony of sorts seems to have taken hold in location theory from the time of von Thünen through to Walter Christaller's 1933 book Die Zentralen Orte in Sűddeutschland, which formulated much of what is now understood as central place theory. An especially notable contribution was one by Alfred Weber, who published Über den Standort der Industrien in 1909. Working from a model akin to a physical frame adapted from some ideas by Pierre Varignon (a Varignon frame), Weber applies freight rates of resources and the finished goods along with the finished good's production function to develop an algorithm that identifies the optimal location for manufacturing plant. He also introduces distortions induced by labor and both agglomerative and deglomerative forces. Weber then moves on to discuss groupings of production units, anticipating Lösch's market areas.

Carl Wilhelm Friedrich Launhardt conceived much of that for which Alfred Weber received credit, prior to Weber's work. Moreover, his contributions are surprisingly more modern in their analytical content than Weber's. This suggests that Launhardt was ahead of his time and simply was not readily understood by many of his contemporaries. Whether Weber was familiar with Launhardt's publications remains unclear. Weber was most certainly influenced by others, most notably Wilhelm Roscher and Albert Schäffle, who seem likely to have read Launhardt's work. Regardless, location theoretic thought blossomed only after Weber's book was published.


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