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Environmental Policy and the Collapse of the Monocentric City

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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 - acts as a centrifugal force, while positive knowledge spillovers and a site with natural cost advantage act as centripetal forces. We study the agglomeration e ects caused by trade-o s between centripetal and centrifugal forces which eventually determine the distribution of economic activity across space. The rational expectations market equilibrium with spatially myopic environmental policy results either in a monocentric or in a polycentric city with the major cluster at the natural advantage site. The regulator�s optimum results in a bicentric city which suggests that when environmental policy is spatially optimal, the natural advantage sites do not act as attractors of economic activity.

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Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1020.

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Handle: RePEc:aue:wpaper:1020

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Keywords: Agglomeration; Space; Environmental policy; Natural cost advantage; Knowledge spillovers; Monocentric-bicentric city;

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  1. Esteban Rossi-Hansberg, 2004. "Optimal Urban Land Use and Zoning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 69-106, January.
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Cited by:
  1. Efthymia Kyriakopoulou & Anastasios Xepapadeas, 2011. "Spatial location decisions under environmental policy and housing externalities," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 13(3), pages 195-217, September.

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