Production location and random input price

The purpose of this paper is to develop systematically the theory of plant location for a competitive firm facing random input price. It will be shown that the impact of input price uncertainty on the firm's optimum location depend crucially upon (i) the firm's attitude toward risk, (ii) the characteristics of the production function, (iii) the structure of transport costs on inputs and output, and (iv) the type of input usages. Moreover, and more importantly, some conclusions obtained by prior studies on location theory in a certainty world can also be shown to be special cases of our more general results, but some are not justifiable in a world with random input price.