Taste heterogeneity, labor mobility and economic geography

This paper investigates the impact of the heterogeneity of the labor force on the spatial distribution of activities. This goal is achieved by applying the tools of discrete choice theory to an economic geography model. We show that taste heterogeneity acts as a strong dispersion force. We also show that the relationship between the spatial distribution of the industry (the wage differential) and trade costs is smooth and bell-shaped. Finally, while Rawlsian equity leads to the dispersion of industry, our analysis reveals that efficiency leads to a solution close to the market outcome, although the latter is likely to involve too much agglomeration compared to the former.