Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

We explain the spatial concentration of economic activity, in a model of economic geography, when the cost of environmental policy - which is increasing in the concentration of emissions - and an immobile production factor act as centrifugal forces, while positive knowledge spillovers and iceberg transportation costs act as centripetal forces. We study the agglomeration effects caused by trade-offs between centripetal and centrifugal forces. The above effects govern firms’ location decisions and as a result, they define the distribution of economic activity across space. We derive the rational expectations equilibrium and the social optimum, compare the outcomes and characterize the optimal spatial policies.


Issue Date:
2009-10
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/54289
Total Pages:
44
JEL Codes:
R3; Q5; H2
Series Statement:
SD
70.2009




 Record created 2017-04-01, last modified 2017-08-25

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