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Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

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  • Efthymia Kyriakopoulou
  • Anastasios Xepapadeas

Abstract

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 pollution - 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 e ects caused by trade-o s between centripetal and centrifugal forces. The above e ects govern rms� location decisions and, as a result, they de ne the distribution of economic activity across space. We derive the rational expectations equilibrium, which results either in a monocentric or in a polycentric city, and the regulator�s optimum, which results in a bicentric city. We compare the outcomes and characterize the optimal spatial policies.

Suggested Citation

  • Efthymia Kyriakopoulou & Anastasios Xepapadeas, 2010. "Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations," DEOS Working Papers 1018, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:1018
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    Cited by:

    1. Costantini, Valeria & Mazzanti, Massimiliano & Montini, Anna, 2013. "Environmental performance, innovation and spillovers. Evidence from a regional NAMEA," Ecological Economics, Elsevier, vol. 89(C), pages 101-114.
    2. Dean M. Hanink, 2010. "Perspectives on Regional Change: A Review Essay on Handbook of Regional Growth and Development Theories," Growth and Change, Wiley Blackwell, vol. 41(1), pages 3-27, March.

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    More about this item

    Keywords

    Agglomeration; Space; Pollution; Environmental Policy; Knowledge Spillovers; Transportation Cost;
    All these keywords.

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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