Firms’ location Under taste and demand heterogeneity

Toshihiro Okubo and Pierre Picard

No 2008071, LIDAM Discussion Papers CORE from Université catholique de Louvain, 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.

Keywords: heterogeneous taste and quality; spatial selection; economic geography; agglomeration; home market effect. (search for similar items in EconPapers)
JEL-codes: F12 F15 R11 R12 (search for similar items in EconPapers)
Date: 2008-12-01
New Economics Papers: this item is included in nep-geo and nep-ure
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2008071

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