Choice Set Formation in Microscopic Firm Location Models

This chapter presents a spatial firm demographic model (SFM) that simulates changes in states of individual firms and their location choice behaviour. Firm location choice in such disaggregate models is characterised by large numbers of alternatives and complex spatial interdependencies among them. This chapter deals with a particular issue of firm location choice: the choice set composition in a disaggregate spatial choice context. A choice model is presented with probabilistic choice sets assuming that choice alternatives that are dominated by others are not taken into consideration in the location decision. The estimated models have significant parameters for dominance, and they are implemented in the SFM model, to test to what extent the simulation results are improved.