Location theory is concerned with the geographic location of economic activity; it has become an integral part of economic geography, regional science, and spatial economics. Location theory addresses questions of what economic activities are located where and why. Location theory rests—like microeconomic theory generally—on the assumption that agents act in their own self-interest. Firms thus choose locations that maximize their profits and individuals choose locations that maximize their utility.
While others should get some credit for earlier work (e.g., Richard Cantillon, Etienne Bonnot de Condillac, David Hume, Sir James D. Steuart, and David Ricardo), it was not until the publication of Johann Heinrich von Thünen's first volume of Der Isolierte Staat in 1826 that location theory can be said to have really gotten underway. Indeed, the prominent regional scientist Walter Isard has called von Thünen "the father of location theorists." In Der Isolierte Staat, von Thünen notes that the costs of transporting goods consumes some of Ricardo's economic rent. He notes that because these transportation costs and, of course, economic rents, vary across goods, different land uses and use intensities will result with increased distance from the marketplace. However, the discussion was criticized since Johann Heinrich von Thünen oversimplified the problem with his assumptions of, for example, isolated states or single cities.
Tord Palander (1935) wrote: Market area division of two competing firms.
A German hegemony of sorts seems to have taken hold in location theory from the time of von Thünen through to Walter Christaller's 1933 book Die Zentralen Orte in Sűddeutschland, which formulated much of what is now understood as central place theory. An especially notable contribution was made by Alfred Weber, who published Über den Standort der Industrien in 1909. Working from a model akin to a physical frame adapted from some ideas by Pierre Varignon (a Varignon frame), Weber applies freight rates of resources and finished goods, along with the finished good's production function, to develop an algorithm that identifies the optimal location for manufacturing plant. He also introduces distortions induced by labor and both agglomerative and deglomerative forces. Weber then discusses groupings of production units, anticipating Lösch's market areas.
Carl Wilhelm Friedrich Launhardt conceived much of that for which Alfred Weber received credit, prior to Weber's work. Moreover, his contributions are surprisingly more modern in their analytical content than are Weber's. This suggests that Launhardt was ahead of his time and not readily understood by many of his contemporaries. Whether Weber was familiar with Launhardt's publications remains unclear. Weber was most certainly influenced by others, most notably Wilhelm Roscher and Albert Schäffle, who seem likely to have read Launhardt's work. Regardless, location theoretical thought blossomed only after Weber's book was published.
- Thünen, Johann Heinrich von. 1783–1850. Der Isolierte Staat in Beziehung auf Landwirtschaft und Nationalökonomie, oder Untersuchungen über den Einfluss, den die Getreidepreise, der Reichtum des Bodens und die Abgaben auf den Ackerbau ausüben, Vol. 1,. and Der Isolierte Staat..., Vol II: Der Naturgeässe Arbeitslohn und dessen Verhältnis zum Zinsfuss und zur Landrente, Part 1 (Partial translation into English by Carla M. Wartenberg in 1966 as Isolated State. New York: Pergamon Press.) For more information, see Scott Crosier's Johann-Heinrich von Thünen: Balancing Land-Use Allocation with Transport Cost.
- Dempsey, Bernard W. 1960. The Frontier Wage Chicago: Loyola University Press. In pages 187–367 Dempsey has translated von Thünen 1863 piece Der Isolierte Staat, Vol II, Part 2 as The Isolated State in Relation to Agriculture and Political Economy, Vol. II: The Natural Wage and Its Relation to the Rate of Interest and to Economic Rent.
- Isard (1956, p. 27).
- Richards, H. A. (1962). Transportation Costs and Plant Location: A Review of Principal Theories. Transportation Journal, 2(2), 19–24.
- Google Books
- Weber, Alfred. 1929. (translated by Carl J. Friedrich from Weber's 1909 book). Theory of the Location of Industries. Chicago: The University of Chicago Press. For more details see David Fearon's Alfred Weber: Theory of the Location of Industries, 1909.
- "Hidden Treasures at the Australian Museum". Catalyst, ABC. 26 August 2010. Retrieved 2010-08-27.