In order to evaluate the allocational effectiveness of regional policy when harmonizing regional economic conditions firms' preferences play a pivot role. If harmonization hinders risk diversification of the firm, then instead of regional diversification of capital agglomeration of capital...

This paper considers a model of spatial allocation of investment capital under uncertainty. We demonstrate that the spatial concentration of economic activity depends upon properties of risk preferences deeper than risk aversion. The degree of so-called relative prudence unambiguously decides...