Locational and managerial decisions as interdependent choices in the headquarter-manufacturing plant relationship: A theoretical approach

The main purpose of the paper is to provide a link between the location decision and the internal organization of vertically integrated firms. The results of the model show that the decisions about location and managerial (de)centralization are interdependent: For certain parameters, firms should change both aspects simultaneously as a response to lower communication costs. The positive correlation between the decentralization of decision-making and geographic decentralization predicted by the model is supported by empirical research.