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Regional inequality and product variety

  • Kristian, BEHRENS
  • Jacques-François, THISSE

We investigate how differences in set-up costs of various types affect the trade-off between global efficiency and spatial equity and show that the standard assumption of symmetry in fixed costs masks the existence of an interesting effect : the range of available varieties varies depends on the spatial distribution of firms. In such a setting, even when the market outcome leads to excessive agglomeration under symmetric fixed costs, a planner opts for asymmetric fixed costs and more agglomeration. The reason is that the losses induced by more agglomeration are offset by the gains due to additional product variety.

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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005013.

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Length: 15
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:ctl:louvec:2005013
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  8. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 2003. "Agglomeration and economic geography," CORE Discussion Papers 2003016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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