ative to the cost of private information acquisition σa/c, and the fixed precision of
information θ). In the unshaded region [where both inequalities (31) and (32) fail to
hold], neither firm acquires information because the benefit of information relative
to its cost is low. In the lightly shaded region [where (31) holds but (32) does not],
Firm 1 acquires the private signal and Firm 2 does not, although Firm 2 would have
acquired it had Firm 2 been first mover. In the darkly shaded region [where (31)
and (32) both hold], both firms acquire private information. Thus, profit maximizing
firms in environments with binary choice of acquisition of information may choose
to imitate first movers’ locations rather than engaging in costly private information
acquisition, as was the case in continuous acquisition environments.
3 Discussion
Rather than evaluating shortcuts, or heuristics, according to context-free domain-
general normative criteria, the aim of this paper is to explain when the imitation
heuristic works well in terms of social efficiency and where it is, unfortunately, mis-
matched to the decision environment, contributing to persistently under-developed
regions in central cities. There is a long and distinguished literature on spatial
agglomerations of people and commerce (Christels, 1933; Losch, 1938; Zipf, 1949;
Berry, 1961). Economists have advanced formal models of spatial organization, from
Hotelling (1929) to Krugman (1993), and beyond.5 Economists have also contributed
a rich theoretical literature explaining why imitation is individually advantageous
in various settings (Sinclair, 1990; Welch, 1992; Banerjee, 1992; Bikhchandhani,
Hirshleifer and Welch, 1992; Ellison and Fudenberg, 1995; Vega-Redondo, 1997;
5 Boschma and Frenken (2007) provide a lucid discussion of economic geographys institutional focus in contrast
with new economic geographys neoclassical methodology, which attempts to explain uneven distributions of economic
activity in terms of universal processes driven by mobile factors of production.
21