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Externalities in the Urban Economy

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Author Info

  • Erik T. Verhoef

    () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Peter Nijkamp

    () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

Abstract

This paper is concerned with the economics of urban externalities. We start by reviewing the literature on urban externalities, and observe that although many interesting contributions have been made, there seems to be sufficient scope and need for further research, both theoretically and empirically. We identify what we believe to be important advances to be pursued in future research on urban externalities. These include (1) the explicit consideration of mutual interactions between externalities; (2) a thorough analysis of the relationship between these externalities and urban form; and (3) a clear focus on (realistic) second-best policies. The importance of these issues is illustrated by developing a simple urban general equilibrium model in which we study the interactions between agglomeration externalities and pollution from commuting. Our results show that seemingly impossible findings from a non-spatial perspective, namely a simultaneous stimulation of agglo! meration externalities and a reduction of environmental externalities, is in fact the outcome of first-best policies in our spatial model. Moreover, while the incentives from road pricing and labour subsidies would seem to be perfectly opposite in a non-spatial setting, leaving one of the two instruments redundant, our results show that their welfare effects may, in contrast, turn out to be strongly super-additive when a spatial perspective is taken.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-078/3.

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Date of creation: 30 Sep 2003
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Handle: RePEc:dgr:uvatin:20030078

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Related research

Keywords: Urban equilibrium; environmental and agglomeration externalities; second-best regulation;

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References

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  1. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
  2. Richard Arnott & Alex Anas & Kenneth Small, 1997. "Urban Spatial Structure," Boston College Working Papers in Economics 388., Boston College Department of Economics.
  3. Verhoef, Erik T. & Nijkamp, Peter, 2002. "Externalities in urban sustainability: Environmental versus localization-type agglomeration externalities in a general spatial equilibrium model of a single-sector monocentric industrial city," Ecological Economics, Elsevier, vol. 40(2), pages 157-179, February.
  4. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  5. Sullivan, Arthur M., 1986. "A general equilibrium model with agglomerative economies and decentralized employment," Journal of Urban Economics, Elsevier, vol. 20(1), pages 55-74, July.
  6. Small, Kenneth A. & Gomez-Ibanez, Jose A., 1999. "Urban transportation," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 46, pages 1937-1999 Elsevier.
  7. Chu Xuehao, 1995. "Endogenous Trip Scheduling: The Henderson Approach Reformulated and Compared with the Vickrey Approach," Journal of Urban Economics, Elsevier, vol. 37(3), pages 324-343, May.
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May.
  10. Anas, Alex & Kim, Ikki, 1996. "General Equilibrium Models of Polycentric Urban Land Use with Endogenous Congestion and Job Agglomeration," Journal of Urban Economics, Elsevier, vol. 40(2), pages 232-256, September.
  11. E T Verhoef & J C J M van den Bergh & K J Button, 1997. "Transport, spatial economy, and the global environment," Environment and Planning A, Pion Ltd, London, vol. 29(7), pages 1195-1213, July.
  12. Erik T. Verhoef & Peter Nijkamp, 2000. "Externalities in Urban Sustainability," Tinbergen Institute Discussion Papers 00-077/3, Tinbergen Institute.
  13. Verhoef, Erik T., 2002. "Second-best congestion pricing in general networks. Heuristic algorithms for finding second-best optimal toll levels and toll points," Transportation Research Part B: Methodological, Elsevier, vol. 36(8), pages 707-729, September.
  14. Arnott, Richard, 1979. "Optimal city size in a spatial economy," Journal of Urban Economics, Elsevier, vol. 6(1), pages 65-89, January.
  15. Parry, Ian & Bento, Antonio, 1999. "Revenue Recycling and the Welfare Effects of Road Pricing," Discussion Papers dp-99-45, Resources For the Future.
  16. Tabuchi, Takatoshi, 1998. "Urban Agglomeration and Dispersion: A Synthesis of Alonso and Krugman," Journal of Urban Economics, Elsevier, vol. 44(3), pages 333-351, November.
  17. Erik T. Verhoef, 2000. "Second-Best Congestion Pricing in General Networks - Algorithms for Finding Second-Best Optimal Toll Levels and Toll Points," Tinbergen Institute Discussion Papers 00-084/3, Tinbergen Institute.
  18. Henderson, J Vernon, 1985. "The Tiebout Model: Bring Back the Entrepreneurs," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 248-64, April.
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Cited by:
  1. Borck, Rainald & Wrede, Matthias, 2009. "Subsidies for intracity and intercity commuting," Journal of Urban Economics, Elsevier, vol. 66(1), pages 25-32, July.

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