Heterogeneity in states and urban structure

The purpose of this paper is to relax the standard assumption of static urban economic theory concerning perfect homogeneity in tastes of individuals belonging to the same class. We study the impact of heterogeneity in tastes on urban structure using the simplest meaningful clone of the standard model: all arguments are presented in the context of a metropolitan area which is partitioned in two homogeneous zones, centre and suburd. Given that individuals have perfect knowledge, heterogeneity in tastes may affect equilibrium in two ways. Namely, individuals may differ with respect to their location decision and, at a particular location, they may differ with respect to how they allocate their initial resources. The strategy adopted here is to study these two effects in isolation.