An Introduction to Regional Economics

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An Introduction to Regional EconomicsAn,to,an

    An Introduction to

    Regional Economics

    Edgar M. Hoover and Frank Giarratani

    1 Introduction


    Economic systems are dynamic entities, and the nature and consequences of changes that take place in these systems are of considerable importance. Such change affects the well-being of individuals and ultimately the social and political fabric of community and nation. As social beings, we cannot help but react to the changes we observe. For some people that reaction is quite passive; the economy changes, and they find that their immediate environment is somehow different, forcing adjustment to the new reality. For others, changes in the economic system represent a challenge; they seek to understand the nature of factors that have led to change and may, in light of that knowledge, adjust their own patterns of behavior or attempt to bring about change in the economic, political, and social systems in which they live and work.

    In this context, regional economics represents a framework within which the spatial character of economic systems may be understood. We seek to identify the factors governing the distribution of economic activity over space and to recognize that as this distribution changes, there will be important consequences for individuals and for communities.

    Thus, regional or "spatial" economics might be summed up in the question "What is where, and whyand so what?" The first what refers to every type of economic activity: not only production establishments in the narrow sense of factories, farms, and mines, but also other kinds of businesses, households, and private and public institutions. Where refers to location in relation to other economic activity; it involves questions of proximity, concentration, dispersion, and similarity or disparity of spatial patterns, and it can be discussed either in broad terms, such as among regions, or microgeographically, in terms of zones, neighborhoods, and sites. The why and the so what refer to interpretations within the somewhat elastic limits of the economist's competence and daring.

    Regional economics is a relatively young branch of economics. Its late start exemplifies the regrettable tendency of formal professional disciplines to lose contact with one another and to neglect some important problem areas that require a mixture of approaches. Until fairly recently, traditional economists ignored the where question altogether, finding plenty of problems to occupy them without giving any spatial dimension to their analysis. Traditional geographers, though directly concerned with what is where, lacked any real technique of explanation in terms of human behavior and institutions to supply the why, and resorted to mere description and mapping. Traditional city planners, similarly limited, remained preoccupied with the physical and aesthetic aspects of idealized urban layouts.

    This unfortunate situation has been corrected to a remarkable extent within the last few decades. Individuals who call themselves by various professional labelseconomists,

    geographers, ecologists, city and regional planners, regional scientists, and urbanistshave joined

    to develop analytical tools and skills, and to apply them to some of the most pressing problems of the time.

    The unflagging pioneer work and the intellectual and organizational leadership of Walter Isard since the 1940s played a key role in enlisting support from various disciplines to create this new focus. His domain of "regional science" is extremely broad. This book will follow a less comprehensive approach, using the special interests and capabilities of the economist as a point of departure.


    It will be helpful to realize at the outset that three fundamental considerations underlie the complex patterns of location of economic activity and most of the major problems of regional economics.

    The first of these "foundation stones" appears in the simplistic explanations of the location of industries and cities that can still be found in old-style geography books. Wine and movies are made in California because there is plenty of sunshine there; New York and New Orleans are great port cities because each has a natural water-level route to the interior of the country; easily developable waterpower sites located the early mill towns of New England; and so on. In other words, the unequal distribution of climate, minerals, soil, topography, and most other natural features helps to explain the location of many kinds of economic activity. A bit more generally and in the more precise terminology of economic theory, we can identify the complete or partial immobility of land and other productive factors as one essential part of any explanation of what is where. Such immobility lies at the heart of the comparative advantage that various regions enjoy for specialization in production and trade.

    This is, however, by no means an adequate explanation. One of the pioneers of regional economics, August Lösch, set himself the question of what kind of location patterns might logically be expected to appear in an imaginary world in which all natural resource differentials were assumed away, that is, in a uniformly endowed flat plain.1 In such a situation, one might

    conceivably expect (1) concentration of all activities at one spot, (2) uniform dispersion of all activities over the entire area (that is, perfect homogeneity), or (3) no systematic pattern at all, but a random scatter of activities. What does actually appear as the logical outcome is none of these, but an elaborate and interesting regular pattern somewhat akin to various crystal structures and showing some recognizable similarity to real-world patterns of distribution of cities and towns. We shall have a look at this pattern in Chapter 8. What the Christaller-Lösch theoretical exercises

    demonstrated was that factors other than natural-resource location play an important part in explaining the spatial pattern of activities.

    In developing his abstract model, Lösch assumed just two economic constraints determining location: (1) economies of spatial concentration and (2) transport costs. These are the second and third essential foundation stones.

    Economists have long been aware of the importance of economies of scale, particularly since the days of Adam Smith, and have analyzed them largely in terms of imperfect divisibility of production factors and other goods and services. The economies of spatial concentration in their turn can, as we shall see in Chapter 5 and elsewhere, be traced mainly to economies of scale in

    specific industries.

    Finally, goods and services are not freely or instantaneously mobile: Transport and communication cost something in effort and time. These costs limit the extent to which advantages

of natural endowment or economies of spatial concentration can be realized.

    To sum up, an understanding of spatial and regional economic problems can be built on three facts of life: (1) natural-resource advantages, (2) economies of concentration, and (3) costs of transport and communication. In more technical language, these foundation stones can be identified as (1) imperfect factor mobility, (2) imperfect divisibility, and (3) imperfect mobility of goods and services.


    What, then, are the actual problems in which an understanding of spatial economics can be helpful? They arise, as we shall see, on several different levels. Some are primarily microeconomic, involving the spatial preferences, decisions, and experiences of such units as households or business firms. Others involve the behavior of large groups of people, whole industries, or such areas as cities or regions. To give some idea of the range of questions involved and also the approach that this book takes in developing a conceptual framework to handle them, we shall follow here a sequence corresponding to the successive later chapters.

    The business firm is, of course, most directly interested in what regional economics may have to say about choosing a profitable location in relation to given markets, sources of materials, labor, services, and other relevant location factors. A nonbusiness unit such as a household, institution, or public facility faces an analogous problem of location choice, though the specific location factors to be considered may be rather different and less subject to evaluation in terms of price and profit. Our survey of regional economics begins in Chapter 2 by taking a microeconomic viewpoint. That

    is, all locations, conditions, and activities other than the individual unit in question will be taken as given: The individual unit's problem is to decide what location it prefers.

    The importance of transport and communication services in determining locations (one of the three foundation stones) will become evident in Chapter 2. The relation of distance to the cost of the spatial movement of goods and services, however, is not simple. It depends on such factors as route layouts, scale economies in terminal and carriage operations, the length of the journey, the characteristics of the goods and services transferred, and the technical capabilities of the available transport and communication media. Chapter 3 identifies and explains such relations and will

    explore their effects on the advantages of different locations.

    In Chapter 4, an analysis of pricing decisions and demand in a spatial context is developed. This analysis extends some principles of economics concerning the theory of pricing and output decisions to the spatial dimension. As a result, we shall be able to appreciate more fully the relationship between pricing policies and the market area of a seller. We shall find also that space provides yet another dimension for competition among sellers. Further, this analysis will serve as a basis for understanding the location patterns of whole industries. If an individual firm or other unit has any but the most myopic outlook, it will want to know something about shifts in such patterns. For example, a firm producing oil-drilling or refinery equipment should be interested in the locational shifts in the oil industry and a business firm enjoying favorable access to a market should want to know whether it is likely that more competition will be coming its way.

    While some of the issues developed in Chapter 4 concern factors that contribute to the dispersion of sellers within an industry, Chapter 5 recognizes the powerful forces that may draw

    sellers together in space. From an analysis of various types of economies of spatial concentration and a description of empirical evidence bearing on their significance, we shall find that the nature of this foundation stone of location decisions can have important consequences for local areas or


    Chapter 6 introduces explicit recognition of the fact that activities require space. Space (or distance, which is simply space in one dimension) plays an interestingly dual role in the location of activities. On the one hand, distance represents cost and inconvenience when there is a need for access (for instance, in commuting to work or delivering a product to the market), and transport and communication represent more or less costly ways of surmounting the handicaps to human interaction imposed by distance. But at the same time, every human activity requires space for itself. In intensively developed areas, sheer elbowroom as well as the amenities of privacy are scarce and valuable. In this context, space and distance appear as assets rather than as liabilities.

    Chapter 6 treats competition for space as a factor helping to determine location patterns and individual choices. The focus here is still more "macro" than the discussion of location patterns developed in preceding chapters, in that it is concerned with the spatial ordering of different types of land use around some special pointfor example, zones of different kinds of agriculture

    around a market center. In Chapter 6, the location patterns of many industries or other activities are considered as constituents of the land-use pattern of an area, like pieces of a jigsaw puzzle. Many of the real problems with which regional economies deal are in fact posed in terms of land use (How is this site or area best used?) rather than in terms of location per se (Where is this firm, household, or industry best situated?). The insights developed in this chapter are relevant, then, not only for the individual locators but also for those owning land, operating transit or other utility services, or otherwise having a stake in what happens to a given piece of territory.

    The land-use analysis of Chapter 6 serves also as a basis for understanding the spatial organization of economic activity within urban areas. For this reason, Chapter 7 employs the

    principles of resource allocation that govern land use and exposes the fundamental spatial structure of urban areas. Consideration is given also to the reasons for and implications of changes in urban spatial structure. This analysis provides a framework for understanding a diverse array of problems faced by city planners and community developers and redevelopers.

    In Chapter 8, the focus is broadened once more in order to understand patterns of

    urbanization within a region: the spacing, sizes, and functions of cities, and particularly the relationship between size and function. Real-world questions involving this so-called central-place analysis include, for example, trends in city-size distributions. Is the crossroads hamlet or the small town losing its functions and becoming obsolete, or is its place in the spatial order becoming more important? What size city or town is the best location for some specific kind of business or public facility? What services and facilities are available only in middle-sized and larger cities, or only in the largest metropolitan centers? In the planned developed or underdeveloped region, what size distribution and location pattern of cities would be most appropriate? Any principles or insights that can help answer such questions or expose the nature of their complexity are obviously useful to a wide range of individuals.

    Chapter 9 deals with regions of various types in terms of their structure and functions. In particular, it concerns the internal economic ties or "linkages" among activities and interests that give a region organic entity and make it a useful unit for description, analysis, administration, planning, and policy.

    After an understanding of the nature of regions is developed in Chapter 9, our attention turns to growth and change and to the usefulness and desirability of locational changes, as distinct from rationalizations of observed behavior or patterns. Chapter 10 deals specifically with people and

    their personal locational preferences; it is a necessary prelude to the consideration of regional and urban development and policy that follows. Migration is the central topic, since people most clearly express their locational likes and dislikes by moving. Some insight into the factors that determine who moves where, and when, is needed by anyone trying to foresee population changes (such as regional and community planners and developers, utility companies, and the like). This insight is even more important in connection with framing public policies aimed at relieving regional or local poverty and unemployment.

    Chapters 11 and 12, dealing with regional development and related policy issues, are

    concerned wit the region as a whole plus a still higher level of concern; namely, the national interest in the welfare and growth of the nation's constituent regions. Chapter 11, building on the concepts of regional structure developed in Chapter 9, concentrates on the process and causes of regional growth and change. Viewing the region as a live organism, we develop a basic understanding of its anatomy and physiology. Chapter 12 proposes appropriate objectives for regional development (involving, that is, the definition of regional economic "health"). It analyzes the economic ills to which regions are heir (pathology) and ventures to assess the merits of various kinds of policy to help distressed regions (therapeutics).

    Throughout this text, evidence of the special significance of the "urban" region will be found. Discussions of economies associated with the spatial concentration of activity, land use, and regional development and policy have important urban dimensions. It is fitting, the, that the last chapter of the text, Chapter 13, focuses on some major present-day urban problems and possible

    curative or palliative measures. Attention is given to four areas of concern (downtown blight, poverty, urban transport, and urban fiscal distress) in which spatial economic relationships are particularly important and the relevance of our specialized approach is therefore strong.

    It is hoped that this discussion has served to create an awareness of some basic factors governing the spatial distribution of economic activity and their importance in a larger setting. The course of study on which we are about to embark will introduce a framework for understanding the mechanisms by which these factors have effect. It holds out the prospect of developing perspective on associated problems and a basis for the analysis of those problems and their consequences.


    Martin Beckmann, Location Theory (New York: Random House, 1968).

    Edgar M. Hoover, "Spatial Economics: Partial Equilibrium Approach," in Encyclopedia of the Social Sciences (New York: Macmillan, 1968).

    Walter Isard, Location and Space-Economy (Cambridge, Mass.: The MIT Press, 1956).

    August Lösch, Die räumliche Ordnung der Wirtschaft (Jena: Gustav Fischer, 1940; 2nd ed., 1944); W. H. Woglom (tr.), The Economics of Location (New Haven, Conn.: Yale University Press, 1954).

    Leon Moses, "Spatial Economics: General Equilibrium Approach," in Encyclopedia of the Social Sciences (New York: Macmillan, 1968).

    Hugh O. Nourse, Regional Economics (New York: McGraw-Hill, 1968).

    Harry W. Richardson, "The State of Regional Economics," International Regional Science Review, 3, 1 (Fall 1978), 1-48.

    Harry W. Richardson, Regional Economics (Urbana, Ill.: University of Illinois Press, 1979).


    1. A point of departure for Lösch's work was that of a predecessor, the geographer Walter Christaller, whose studies were more empirically oriented.

    An Introduction to Regional Economics

    Edgar M. Hoover and Frank Giarratani

    2 Individual Location Decisions


    Later in this book we shall come to grips with some major questions of locational and regional macroeconomics; our concern will be with such large and complex entities as neighborhoods, occupational labor groups, cities, industries, and regions. We begin here, however, on a microeconomic level by examining the behavior of the individual components that make up those larger groups. These individual units will be referred to as location units.

    Just how microscopic a view one takes is a matter of choice. Within the economic system there are major producing sectors, such as manufacturing; within the manufacturing sector are various industries. An industry includes many firms; a firm may operate many different plants, warehouses, and other establishments. Within a manufacturing establishment there may be several buildings located in some more or less rational relation to one another. Various departments may occupy locations within one building; within one department there is a location pattern of individual operations and pieces of equipment, such as punch presses, desks, or wastebaskets.

    At each of the levels indicated, the spatial disposition of the units in question must be considered: industries, plants, buildings, departments, wastebaskets, or whatever. Although determinations of actual or desirable locations at different levels share some elements,1 there are

    substantial differences in the principles involved and the methods used. Thus, it is necessary to specify the level to which one is referring.

    We shall start with a microscopic but not ultramicroscopic view, ignoring for the most part (despite their enticements in the way of immediacy, practicality, and amenability to some highly sophisticated lines of spatial analysis) such issues as the disposition of departments or equipment within a business establishment or ski lifts on a mountainside or electric outlets in a house. Our smallest location units will be defined at the level of the individual dwelling unit, the farm, the factory, the store, or other business establishment, and so on. These units are of three broad types: residential, business, and public. Some location units can make independent choices and are their own "decision units"; others (such as branch offices or chain store outlets) are located by external decision.

    Many individual persons represent separate residential units by virtue of their status as self-supporting unmarried adults; but a considerably larger number do not. In the United States in 1980, only about one person in twelve lived alone. About 44 percent of the population were living in couples (mostly married); nearly 30 percent were dependent children under eighteen; and a substantial fraction of the remainder were aged, invalid, or otherwise dependent members of family households, or were locationally constrained as members of the armed forces, inmates of institutions, members of monastic orders, and so on. For these types of people, the residential location unit is a group of persons.

    In the business world, the firm is the unit that makes locational decisions (the location decision unit), but the "establishment" (plant, store, bank branch, motel, theater, warehouse, and

    the like) is the unit that is located. Further, the great majority of such establishments are the only ones that their firms operate. In general, a business location unit defined in this way has a specific site; but in some cases, the unit's actual operations can cover a considerable and even a fluctuating area. Thus, construction and service businesses have fixed headquarters, but their workers range sometimes far afield in the course of their duties; and the "location" of a transportation company is a network of routes rather than a point.

    Nonprofit, institutional, social, and public-service units likewise have to be located. Though the decision may be made by a person or office in charge of units in many locations, the relevant locational unit for our purposes is the smallest one that can be considered by itself: for example, a church, a branch post office, a college campus, a police station, a municipal garage, or a fraternity house.


    Let us now take a locational unita single-establishment business firm, as a starting

    pointand inquire into its location preferences. First, what constitutes a "good" location? Subject to some important qualifications to be noted later, we can specify profits, in the sense of rate of return on the owners' investment of their capital and effort, as a measure of desirability of alternative sites. We must recognize, however, that this signifies not just next week's profits but the expected return over a considerable future period, since a location choice represents a commitment to a site with costs and risks involved in every change of location. Thus, the prospective growth and dependability of returns are always relevant aspects of the evaluation.

    Because it costs something to move or even to consider moving, business locations display a good deal of inertiaeven if some other location promises a higher return, the apparent advantage may disappear as soon as the relocation costs are considered. Actual decisions to adopt a new location, then, are likely to occur mainly at certain junctures in the life of a firm. One such juncture is, of course, birthwhen the initial location must be determined. But at some later time, the growth of a business may call for a major expansion of capacity, or a new process or line of output may be introduced, or there may be a major shift in the location of customers or suppliers, or a major change in transport rates. The important point is that a change in location is rarely just that; it is normally associated with a change in scale of operations, production processes, composition of output, markets, sources of supply, transport requirements, or perhaps a combination of many such changes.2

    It is quite clear that making even a reasonably adequate evaluation of the relative advantages of all possible alternative locations is a task beyond the resources of most small and medium-sized business firms. Such an evaluation is undertaken, as a rule, only under severe pressure of circumstances (a strong presumption that something is wrong with the present location), and various shortcuts and external aids are used. Perhaps the closest approach to continuous scientific appraisal of site advantages is to be found in some of the large retail chains. Profit margins are thin and competition intense; the financial and research resources of the firm are very large relative to the size of the individual store; and the stores themselves are relatively standardized, built on leased land, and easy to move. All these conditions favor a continuous close scrutiny of new site opportunities and the application of sophisticated techniques to evaluate locations.

    Still more elaborate analysis is used as a basis for new location or relocation decisions by large corporations operating giant establishments, such as steel mills. These decisions, however, are few and far between, and involve in general a whole series of reallocations and adjustments of

activities at other facilities of the same firm.

    Within the limitations mentioned above we might characterize business firms as searching for the "best" locations for their establishments. This calls for comparison of the prospective revenues and costs at different locations.

    What has been said about the choice of location for the business establishment will also apply in essence to many kinds of public facilities. Thus a municipal bus system will (or, one might argue, should) locate its bus garages on very much the same basis as would private bus systems. Since the system's revenues do not depend on the location of the garages, the problem is essentially that of minimizing the costs of building and maintaining the garages, storing and servicing the buses, and getting them to and from their routes.

    The correspondence between public and private decisions is less close where the product is not marketed with an eye toward profit but is provided as a "public good" and paid for out of taxes or voluntary contributions. Thus an evaluation of the desirability of alternative locations for a new police station or public health clinic would have to include a reckoning of costs; but on the returns side, difficult estimates of quality and adequacy of service rendered to the community may be required. Where public authorities make the decision, the most readily available measuring rod might well be political rather than economic: Which location will find favor with the largest number of voters at the next election? This is in fact an essential feature of a democratic society.

    Still more unlike the business firm example is that of the location of, say, a church or a nursing home. In neither case is success likely to be measured primarily in terms of numbers of people served or cost per person. Perhaps the judgment rests primarily on whether the facility is so located as to concentrate its beneficent effect on the particular neighborhood or group most needing or desiring it.

    Finally, suppose we are considering the residence location of a family. Here again, cost is an important element in the relative desirability of locations. This cost will include acquiring or renting the house and lot, plus maintenance and utilities expenses, plus taxes, plus costs of access to work, shopping, school, social, and other trip destinations of members of the family. The returns may be measured partly in money terms, if different sites imply different sets of job opportunities; but in any event there will be a large element of "amenity" reflecting the family's evaluation of houses, lots, and neighborhoods; and this factor will be difficult to measure in any way.

    There is a basic similarity in the location decision process of each of these cases: The definition of benefits or costs may differ in substance, but the goal of seeking to increase net benefit by a choice among alternative locations is common to all.

    Further, it is important to note that a family, a business establishment, or any other locational unit is likely to be ripe for change in location only at certain junctures. There is ample and interesting evidence in Census reports that most changes of residence are associated with entry into the labor force, marriage, arrival of the first child, entry of the first child into school, last child leaving the household, widowhood, and retirementthough for specific families or individuals a

    move can also be triggered by a raise in salary, a new job opportunity, or an urban redevelopment project or other sudden change in the characteristics of a neighborhood.

    For all types of locational units, locational choices normally represent a substantial long-range commitment, since there are costs and inconveniences associated with any shift. This commitment has to be made in the face of uncertainty about the actual advantages involved in a location, and especially about possible future changes in relative advantage. Homebuyers cannot

    foresee with any certainty how the character of their chosen neighborhood (in terms of access, income level, ethnic mix, prestige, tax rates, or public services) will changethough they can be

    sure it will change. The business firm cannot be sure about how a location may be affected in the future by such things as shifting markets or sources of supply, transportation costs and services, congestion, changes in taxes and public services, or the location of competitors.

    Such uncertainties, along with the monetary and psychic costs of relocation, introduce a strong element of inertia. They also enhance the preferences for relatively "safe" locations such as "established" residential neighborhoods, business centers, or industrial areas. For business firms, the conservative tendency is reinforced by the fact that in a large corporate organization, decisions are made by managers whose earnings and promotion do not depend directly on the rate of profit made by the corporation so much as on maintenance of a satisfactory and stable earnings level and growth of output and sales. It is increasingly recognized that "profit maximization" may be an oversimplified conception of the motivating force behind business decisions, including those involving location.3

    The effect of uncertainty from these various sources is to encourage spatial concentration of activities and homogeneity within areas. We should also expect a more sluggish response to change than would prevail in the absence of costs and uncertainties of locational choice. Further, if the firm is content with any of a number of "satisfactory" locations rather than insisting on finding the very best, there is substantial room for factors other than narrowly defined and measurable economic interests of the firm to enter the process of locational choice in an important way.

    It is for this reason that the personal preferences of individual decision-makers are present even in the hard-nosed and impersonal corporation. Statistical inquiries into the avowed reasons for business location consistently report, however, that "personal considerations" figure most conspicuously in small, new, and single-establishment firms. Such considerations are least often cited in explaining locations of branch plants by large concerns (this being of course the case in which decision makers themselves are least likely to have a substantial personal stake in the matter, since they themselves will probably not have to live at the chosen location).

    It would be wrong to label all personal elements of choice as irrational or as necessarily contributing to waste and inefficiency. The preference to locate one's job and one's home in a pleasant climate, a congenial community, and with convenient access to urban and cultural amenities may be hard to measure in dollars, but it is at least as real and sensible as one's preference for a higher money income. In the discussion of location factors that follows, the "inputs" and "outputs" should be understood to include even the less measurable and less tangible ones entailed in what are sometimes called nonbusiness motivations.


    Despite the great variety of types of location units, all are sensitive in some degree to certain fundamental location factors. That is to say, the advantages of locations can be categorized (for any type of unit) into a standard set of a few elements.

    2.3.1 Local Inputs and Outputs

    One such element of relative advantage is the supply (availability, price, and quality) of local or nontransferable4 inputs. Local inputs are materials, supplies, or services that are present at a location and could not feasibly be brought in from elsewhere. The use of land is such an input, regardless of whether land is needed just as standing room or whether it also contains minerals or other constituents actually used in the process, as in "extractive" activities such as agriculture or

    mining. Climate and the quality of the local water and air fall into the same category, as do topography and physical soil structure insofar as they affect construction costs, amenity, and convenience. Locally provided public services such as police and fire protection also are local inputs. Labor (in the short run at least) is another, usually accounting for a major portion of the total input costs. Finally, there is a complex of local amenity features, such as the aesthetic or cultural level of the neighborhood or community that plays an especially important role in residential location preferences. The common feature of all these local input factors is that what any given location offers depends on conditions at that location alone and does not involve transfer of the input from any other location.

    In addition to requiring some local inputs, the unit choosing a location may be producing some outputs that by their nature have to be disposed of locally. These are called nontransferable outputs. Thus, the labor output of a household is ordinarily used either at home or in the local labor market area, delimited by the feasible commuting range. Community or neighborhood service establishments (barber shops, churches, movie theaters, parking lots, and the like) depend almost exclusively on the immediately proximate market; and, in varying degree, so do newspapers, retail stores, and schools.

    One type of locally disposed output generated by almost every economic activity is waste. At present, only radioactive or other highly dangerous or toxic waste products are commonly transported any great distance for disposal; though the disposal problem is increasing so rapidly in many areas that we may see a good deal more long-distance transportation of refuse within our lifetimes. Other wastes are just dumped into the air or water or on the ground, with or without incineration or other conversion. In economic terms, a waste output is best regarded as a locally disposed product with negative value. The negative value is particularly large in areas where considerations of land scarcity, air and water pollution, and amenity make disposal costs high; this gives such locations an element of disadvantage for any waste-generating kind of unit.

    It is not always possible to distinguish unequivocally between a local input and a local output factor. For example, along the Mahoning River in northeastern Ohio, the use of water by industries long ago so heated the river that it could no longer furnish a good year-round supply of water for the cooling required by steam electric generating stations and iron and steel works. In this instance, excess heat is the waste product involved. The thermal pollution handicap to heavy-industry development could be assessed either as a relatively poor supply of a needed local input (cold water) or as a high cost for disposing of a local output (excess heat). This is just one example of numerous cases in which a single situation can be described in alternative ways.

    An often-neglected responsibility of government is to see that the costs of environmental pollution are imposed upon the polluting activity. The price of goods should reflect fully the social costs associated with consuming and producing them, if we value a clean environment. It is important to note that this guiding principle can be defended not only on the basis of equity but even more importantly on the basis of efficiency.

    2.3.2 Transferable Inputs and Outputs

    A quite different group of location factors can be described in terms of the supply of transferable inputssuch as fuels, materials, some kinds of services, or informationwhich can

    be moved to a given location from wherever they are produced. Here the advantage of a location depends essentially on its access to sources of supply. Some kinds of activities (for example, automobile assembly plants or department stores) use an enormous variety of transferred inputs

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