Pollution Control and Intercommunity Trade

This paper presents a general equilibrium study of pollution in a system of cities. Pollution is associated with the production of a single commodity and there is no intercommunity spillover of pollution. All commodities can be traded between communities. The optimal intercommunity allocation of production is analyzed for the case of both mobile and immobile population. The appropriate taxes and transfers that support this allocation are derived. It is shown that even in the case where all individuals are identical and production functions are identical everywhere, uniform distribution of pollution over communities is not optimal. The efficient solution requires intercommunity transfers, which make local pollution control inefficient. However, it is pointed out that national control is also very difficult, because the efficient allocation requires different pollution standards (taxes) for different communities; the information required for such central policy is extensive and difficult to obtain.