Imitation in location choice

Imitation in location choice

Nathan Berg*

Abstract: Under the assumption of perfect competition, it is difficult to avoid the
conclusion that abandoned properties and long undeveloped neighborhoods remain
that way because they are unprofitable. In contrast, this paper introduces a model
in which firms systematically overlook neighborhoods with little commercial activity
because of a positive informational externality motivating later movers to condition
choice of location on earlier movers’ locations. When this occurs, firms sometimes
find it profitable to imitate early movers’ locations even though privately acquired
information suggests locating elsewhere. The model facilitates normative analysis
of imitation in location choice by explicitly quantifying losses in aggregate efficiency
following a shift from centralized to decentralized regimes. The model provides a tool
for investigating the hypothesis of inefficient lock-in as it relates to neighborhoods
in U.S. urban centers that remain underutilized despite the presence of profitable
business prospects.

Keywords: Imitation, Location, Ecological Rationality, Bounded Rationality, Lock-
In, Neighborhood, Abandoned

JEL Codes: D21, D61, L20, R14, R30

*Berg is Associate Professor of Economics at the School of Economic, Political and Policy Sciences, University of
Texas-Dallas (UTD), and Director of Science at the Williams Institute and UTD’s joint Center for Urban Economics,
GR31, 800 W. Campbell Road Richardson, Texas 75080-3021. Phone 1-972-883-2088, Fax 1-972-883-6486, Email
[email protected]. Berg gratefully acknowledges financial support from the Don Williams Institute.

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