CULTURAL IDENTITY AND KNOWLEDGE CREATION IN COSMOPOLITAN CITIES*

ABSTRACT We study how the city system is affected by the possibility for the members of the same cultural diaspora to interact across different cities. In so doing, we propose a simple two‐city model with two mobile cultural groups. A localized externality fosters the productivity of individuals when groups interact in a city. At the same time, such interaction dilutes cultural identities and reduces the consumption of culture‐specific goods and services. We show that the two groups segregate in different cities when diaspora members find it hard to communicate at distance whereas they integrate in multicultural cities when communication is easy. The model generates situations in which segregation is an equilibrium but is Pareto dominated by integration.