The locational implications of management and production fragmentation

The main purpose of the work is to provide a theoretical link between the location decision and the internal organization of firms. In the simulation presented, (1) communication costs within the firm and (2) managerial structures affect both the production fragmentation process and the economic specialization of cities. More specifically, as either communication costs diminish or managerial structures become more flexible, manufacturing plants tend to move from the big city to medium cities, whereas headquarters and business services tend to agglomerate in the metropolitan area. The introduction of the internal organization of firms into the model, an aspect that is not modeled by Jones-Kierzkowski's approach, allows this article to formalize some empirical evidences pointed out by the literature.