Economic geography meets Hotelling: the home-sweet-home effect

• Published in: Economic theory Vol. 73; no. 1; pp. 183 - 209
• Main Authors: Castro, Sofia B. S. D., Correia-da-Silva, João, Gaspar, José M.
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01-02-2022; Springer; Springer Nature B.V
• Subjects: Analysis; Center and periphery; Consumption; Economic activity; Economic aspects; Economic geography; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Equilibrium; Game Theory; Microeconomics; Preferences; Public Finance; Random variables; Research Article; Social and Behav. Sciences; Spatial analysis; Portugal; R10; R12; R23; Core-periphery model; New economic geography; Heterogeneous agents; Preferences for location
• ISSN: 0938-2259; 1432-0479
• DOI: 10.1007/s00199-020-01331-8

We introduce heterogeneous preferences for location in 2-region core-periphery models, thereby generating an additional dispersive force: the home-sweet-home effect. Different forms of heterogeneity in preferences for location induce different long-run spatial distributions of economic activity, depending on the short-run equilibrium model and the distribution of preferences for location that are considered. Our analysis highlights the importance of the convexity/concavity properties of utility from consumption and utility from location, as functions of the spatial distribution of economic activity.