These economic characteristics include: the cultural and political preferences of citizens; economic fluctuations over the business cycle; and structural features of the economy, such as industrial composition and policy transmission.46  A related aspect is the degree of specialisation or comparative advantage in an economic area. The greater this degree of specialism or comparative advantage, the stronger the case for having it recognised and supported in the setting of economic policy. Specialisation is one of the ways in which an economic area can harvest the benefits of economies of scale and scope through the agglomeration multiplier.47  On the face of it, there is a considerable degree of heterogeneity across the UK, including in terms of income, wealth, health and happiness. Other things equal, this would support locally-targeted policy  interventions. At the same time, those differences are often as large locally as they are regionally. That suggests a very decentralised setting of policy would be needed, which may come with costs. (b)  Diversity and Risk-Sharing  One of the most important of those costs is the loss of risk-sharing. A diverse economic area allows aggregate fluctuations to be smoothed-out, in the same way a diverse portfolio of assets smooths out returns to an investor. And by smoothing-out aggregate fluctuations, diverse economic areas can help smooth out local fluctuations by transferring resources between regions to insure against region-specific shocks. Another set of factors weighing in the same direction are economies of scale and scope.

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