The install.packages command looks through the .libPaths variable. Here's what mine defaults to on OSX:
> .libPaths()
[1] "/Library/Frameworks/R.framework/Resources/library"
I don't install packages there by default, I prefer to have them installed in my home directory. In my .Rprofile, I have this line:
.libPaths( "/Users/tex/lib/R" )
This adds the directory "/Users/tex/lib/R" to the front of the .libPaths variable.