Imitation in location choice

urbs enjoy well-defined land use rules and relatively liquid markets for efficiently
channeling development capital to profitable locations, the suburban environment is
informationally easy, in the sense that it is cheap to discover where profits are earned.
The model says that, in an informationally easy environment like that, the imitation
heuristic is both individually effective and socially useful. In contrast, when informa-
tion is expensive or scarce, imitation remains individually effective yet undermines
social efficiency.

A general feature of the model is that firms would always prefer to be second mover
and, if the cost of time is low enough, would choose to wait rather than move first,
consistent with the idea of spatial lock-in and systematic neglect of ignored resources
in central cities. Second movers always enjoy greater expected profit because freely
available observation of the first mover’s location results in lower total information
costs over the entire parameter space. This suggests a motive for first movers to try
to be so large that they exhaust all monopoly rents associated with a particular loca-
tion, perhaps applicable to the phenomenon of big box retail and highly coordinated
development that involves a few very large first movers rather than a long sequence
of smaller movers.

Policies aimed at spurring business development in poor neighborhoods typically
rely on the standard economic model of profit-maximization and its assumption that
firms consider vast, if not infinite, sets of alternatives before choosing where to in-
vest. Empirical work, however, points to strong limitations on firms’ consideration
sets and their ability to make reliable spatial predictions in terms of profit. Very
different policy approaches are called for if firms’ decision processes diverge from the
standard model and are better represented by a simple decision tree that eliminates
neighborhoods from consideration based on a single reason—for example, because
there are no other firms there, or because of statistically unsubstantiated fears about

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