chapter  5
27 Pages

Agglomeration Economies and Entrepreneurs’ Preferences

This chapter presents decision making under uncertainty, a subject that further underscores the role of the decision maker's personality in determining the location of the enterprise. It analyzes the roles of agglomeration and diseconomies of agglomeration, as well as the part that the entrepreneurs' preferences and tastes for risk play in their location decision. The mere existence of a cluster of firms in an area generates agglomeration economies, also known as external economies or cluster economies. Agglomeration economies promote grouping together and thus create centripetal forces that entice economic activity to congregate. A type of localization economy takes place when access to and communication with owners of specialized nonlabor resources is possible. Urbanization economies are the advantages connected with the size of an urban area, regardless of the industry involved. Benefits from urbanization also reflect Marshall's three external economies: access to specialized labor, access to other resources, and technological spillovers.