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Firms’ location Under taste and demand heterogeneity

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  • Okubo, Toshihiro

    (---)

  • Picard, Pierre M.

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE), ---)

Abstract

In this paper we build a quality-augmented version of an economic geography model where consumers have heterogenous tastes for a set of manufacturing varieties. We discuss a footloose capital model and a footloose entrepreneur model. We show that firms selling the goods with higher values select the region hosting the largest number of consumers. Larger countries thus get better access to the higher quality products. We also show that the effect of spatial selection on firms' spatial distribution crucially depends on the properties of the taste distribution across varieties. Finally, we show that taste heterogeneity smooths the agglomeration patterns but that it should be considered neither as a dispersion force nor as an agglomeration force. Indeed, the introduction of taste heterogeneity makes an initially dispersed economy less dispersed and an initially agglomerated economy less agglomerated.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008071.

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Date of creation: 01 Dec 2008
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Handle: RePEc:cor:louvco:2008071

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Related research

Keywords: heterogeneous taste and quality; spatial selection; economic geography; agglomeration; home market effect.;

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Cited by:
  1. Pierre M. Picard, 2012. "Trade, Economic Geography and the Choice of Product Quality," CREA Discussion Paper Series 12-11, Center for Research in Economic Analysis, University of Luxembourg.

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