This paper examines the relationship between distance and interaction (telecommunications and transport) costs and rates, with special emphasis on the effects of geographical scale. Focusing on data from Israel, it is demonstrated that: the costs of distance are persistent even in telecommunications systems; for short distances or small regions, transport costs are not necessarily higher than telecommunications costs; and pricing of telecommunications services by governments often does not reflect the costs of providing the services. A cost distribution is created that differs from Euclidean geographical distances: discontinuities in the rate structure of telecommunications distort the distance-cost schedules and by creating barriers, may affect location decisions. It is shown that actual interaction costs are context specific; therefore, no general model has been formulated. An accounting procedure, to be used by decisionmakers considering (re)location in specific contexts, is suggested.
Abstract