Abstract

By introducing heterogeneity between high-skilled mobile and low-skill immobile workers in a model with land rent and commuting costs we develop a new model in the field of the new economic geography. This model, which can reveal a dispersion-agglomeration-dispersion configuration when trade gets freer, is used to compare via the Pareto criterion the two possible market outcomes, i.e. agglomeration and dispersion. When these equilibria can be ranked it is shown that dispersion can be a Pareto-efficient outcome.