192 QUARTERLY JOURNAL OF ECONOMICS a marketable product.An entrepreneur usually has to intervene to accept the risks involved in testing whether the gap can be bridged. If all entrepreneurs,wherever located,could be presumed to be equally conscious of and equally responsive to all entrepreneurial opportunities,wherever they arose,the classical view of the dom- inant role of price in resource allocation might be highly relevant. There is good reason to believe,however,that the entrepreneur's consciousness of and responsiveness to opportunity are a function of ease of communication;and further,that ease of communication is a function of geographical proximity.Accordingly,we abandon the powerful simplifying notion that knowledge is a universal free good,and introduce it as an independent variable in the decision to trade or to invest. The fact that the search for knowledge is an inseparable part of the decision-making process and that relative ease of access to knowledge can profoundly affect the outcome are now reasonably well established through empirical research.5 One implication of that fact is that producers in any market are more likely to be aware of the possibility of introducing new products in that market than producers located elsewhere would be. The United States market offers certain unique kinds of op- portunities to those who are in a position to be aware of them. First,the United States market consists of consumers with an average income which is higher (except for a few anomalies like Kuwait)than that in any other national market-twice as high as that of Western Europe,for instance.Wherever there was a chance to offer a new product responsive to wants at high levels of income,this chance would presumably first be apparent to someone in a position to observe the United States market. Second,the United States market is characterized by high unit labor costs and relatively unrationed capital compared with prac- tically all other markets.This is a fact which conditions the demand for both consumer goods and industrial products.In the case of consumer goods,for instance,the high cost of laundresses contributes to the origins of the drip-dry shirt and the home washing machine. In the case of industrial goods,high labor cost leads to the early 4.Note C.P.Kindleberger's reference to the "horizon"of the decision- maker,and the view that he can only be rational within that horizon;see his Foreign Trade and The National Economy (New Haven:Yale University Press,1962),p.15 passim. 5.See,for instance,Richard M.Cyert and James G.March,A Behavioral Theory of the Firm (Englewood Cliffs,N.J.:Prentice-Hall,1963),esp.Chap. 6;and Yair Aharoni,The Foreign Investment Decision Process,to be pub- lished by the Division of Research of the Harvard Business School,1966.192 QUARTERLY JOURNAL OF ECONOMICS a marketable product. An entrepreneur usually has to intervene to accept the risks involved in testing whether the gap can be bridged. If all entrepreneurs, wherever located, could be presumed to be equally conscious of and equally responsive to all entrepreneurial opportunities, wherever they arose, the classical view of the dom￾inant role of price in resource allocation might be highly relevant. There is good reason to believe, however, that the entrepreneur's consciousness of and responsiveness to opportunity are a function of ease of communication; and further, that ease of communication is a function of geographical pr~ximity.~ Accordingly, we abandon the powerful simplifying notion that knowledge is a universal free good, and introduce it as an independent variable in the decision to trade or to invest. The fact that the search for knowledge is an inseparable part of the decision-making process and that relative ease of access to knowledge can profoundly affect the outcome are now reasonably well established through empirical re~earch.~ One implication of that fact is that producers in any market are more likely to be aware of the possibility of introducing new products in that market than producers located elsewhere would be. The United States market offers certain unique kinds of op￾portunities to those who are in a position to be aware of them. First, the United States market consists of consumers with an average income which is higher (except for a few anomalies like Kuwait) than that in any other national market -twice as high as that of Western Europe, for instance. Wherever there was a chance to offer a new product responsive to wants at high levels of income, this chance would presumably first be apparent to someone in a position to observe the United States market. Second, the United States market is characterized by high unit labor costs and relatively unrationed capital compared with prac￾tically all other markets. This is a fact which conditions the demand for both consumer goods and industrial products. In the case of consumer goods, for instance, the high cost of laundresses contributes to the origins of the drip-dry shirt and the home washing machine. In the case of industrial goods, high labor cost leads to the early 4. Note C. P. Kindleberger's reference to tlie "horizon" of the decision￾maker, and the view that he can only be rational within that horizon; see liis Foreign Trade and The National Economy (New Haven: Yale University Press, 19621, p. 15 passim. 5. See, for instance, Richard M. Cyert and James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 19631, esp. Chap. 6; and Yair Aharoni, The Foreign Investment Deczsion Process, to be pub￾lished by the Division of Research of the Harvard Business School, 1966