Timeliness, Trade and Agglomeration

An important element of the cost of distance is time taken in delivering final and intermediategoods. We argue that time costs are qualitatively different from direct monetary costs such asfreight charges. The difference arises because of uncertainty. Unsynchronised deliveries candisrupt production, and delivery time can force producers to order components beforedemand and cost uncertainties are resolved. Using several related models we show that thiscan cause clustering of component production. If final assembly takes place in two locationsand component production has increasing returns to scale, then component production willtend to cluster around just one of the assembly plants.