Preference Heterogeneity and Economic Geography Authors

New economic geography models analyze agglomeration and dispersion forces, whose interactions determine the spatial distribution of economic activity. We introduce consumers' taste differences in the model by Ottaviano et al. (2002), and we argue that this allows us to represent an additional source of dependence of equilibrium prices on the demand properties shaped by the interregional distribution of workers. In particular, when the intensity of skilled workers' preference for the modern good and its variety is strong enough, prices charged by firms, either local or foreign, may increase when the mass of local firms increases therefore acting as a dispersion force