Price uncertainty and the optimal production-location decision

Abstract The integrated production-location decision involves the simultaneous choice of facility design (input mix) and plant location. This paper generalizes earlier work by incorporating price uncertainty and risk preferences into the problem. Properties of the optimal solution are characterized, and detailed comparative statics analyses are performed to identify the effects of price uncertainty, risk preferences, and production structure on the optimal solution. These results, which illuminate the economic mechanics and parametric sensitivity of such decisions, can be useful for developing and evaluating national and local public policies. An example of their potential use is given.