Factor Returns and Geography

Use of the classification of productive agents into land, labour and capital is deeply imbedded in the theory of eco- nomic geography but is not necessarily appropriate for it. By adopting it, a considerable proportion of current analytic me- thods and their results are preordained: homogeneneous re- gions, the automatic setting of factor prices, the equating of cost and productivity derivatives, etc. A graphical model attempts to depict heterogeneous and flexible factors in partial competition with each other and in spatial conjunction with alternative opportunities to produce a bargaining relationship by which their prices are set. Technologies and products are set concomitantly. Treatment of the effect of spatial configuration on bargaining power is essayed by invoking indepently randomly distributed agents associated with zones of bargaining dominance. An agent comparing wages with jobs available need not seek the highest wage but may prefer a lower one which allows him to keep his options open. This situation is phrased in terms of rational ran- dom behaviour and provides a relationship between income utili- ty, incentives offered and the information about opportunities available for increasing the efficiency of the spatial economy.