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Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

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Author Info
Anastasios Xepapadeas (Athens University of Economics and Business)
Efthymia Kyriakopoulou (Athens University of Economics and Business)
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 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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.70.

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Date of creation: Sep 2009
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Handle: RePEc:fem:femwpa:2009.70

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Related research
Keywords: Agglomeration; Spatial Economics; Environmental Policy; Knowledge Spillovers; Transportation Cost;

Find related papers by JEL classification:
R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location
Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
H2 - Public Economics - - Taxation, Subsidies, and Revenue

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  1. Chris Elbers & Cees Withagen, 2004. "Environmental Policy, Population Dynamics and Agglomeration," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 3(2), pages 1286-1286. [Downloadable!] (restricted)
  2. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September. [Downloadable!] (restricted)
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  3. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December. [Downloadable!]
  4. Krugman, Paul, 1998. "Space: The Final Frontier," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 161-74, Spring. [Downloadable!] (restricted)
  5. Michael Rauscher, 2009. "Concentration, Separation, and Dispersion: Economic Geography and the Environment," Thuenen-Series of Applied Economic Theory 109, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  6. Robert E. Lucas, Jr., 2001. "Externalities and Cities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 245-274, April. [Downloadable!] (restricted)
  7. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September. [Downloadable!] (restricted)
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  8. Fujita, Masahisa & Mori, Tomoya, 1996. "The role of ports in the making of major cities: Self-agglomeration and hub-effect," Journal of Development Economics, Elsevier, vol. 49(1), pages 93-120, April. [Downloadable!] (restricted)
  9. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July. [Downloadable!] (restricted)
  10. Charles van Marrewijk, 2005. "Geographical Economics and the Role of Pollution on Location," Tinbergen Institute Discussion Papers 05-018/2, Tinbergen Institute. [Downloadable!]
  11. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April. [Downloadable!] (restricted)
  12. Brock, William & Xepapadeas, Anastasios, 2008. "Diffusion-induced instability and pattern formation in infinite horizon recursive optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2745-2787, September. [Downloadable!] (restricted)
  13. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February. [Downloadable!] (restricted)
  14. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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