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Pollution and Land Use: Optimum and Decentralization

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Author Info

  • Oded Hochman

    (Department of Economics, Ben Gurion University of the Negev)

  • Gordon Rausser

    (University of California, Berkeley)

  • Richard Arnott

    ()
    (Department of Economics, University of California Riverside)

Abstract

Space matters not only by inducing transport costs but also by mitigating pollution damages. Previous models of pollution either disregard space altogether or presume a predetermined separation between polluters and pollutees. In our model, workers commute to factories and all possible location combinations of housing and industry around a circle are considered. We investigate optimal allocations and their decentralization. The tradeoff between pollution costs and transport costs, along with the non-convexity inherent in spatial models, results in multiple local optima. With negligible commuting costs, the optimal allocation has one industrial and one residential zone. As commuting costs increase, the number of zones of each type increases until an allocation is reached in which housing and industry are completely intermixed. The global optimal allocation is decentralized by imposing a tax per unit area of industrial land at a particular location equal to the total damage caused by the pollution from that unit area, evaluated at the global optimum. Location-specific Pigouvian taxes by themselves are inefficient.

(This abstract was borrowed from another version of this item.)

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File URL: http://economics.ucr.edu/papers/papers08/08-05.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 200805.

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Length: 60 pages
Date of creation: Mar 2008
Date of revision: Mar 2008
Handle: RePEc:ucr:wpaper:200805

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  1. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  2. A. Mitchell Polinsky, 1980. "Strict Liability versus Negligence in a Market Setting," NBER Working Papers 0420, National Bureau of Economic Research, Inc.
  3. Rausser, Gordon C. & Lapan, Harvey E., 1979. "Natural resources, goods, bads and alternative institutional frameworks," Resources and Energy, Elsevier, vol. 2(4), pages 293-324, December.
  4. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, April.
  5. Arnott, Richard, 1979. "Optimal city size in a spatial economy," Journal of Urban Economics, Elsevier, vol. 6(1), pages 65-89, January.
  6. Arrow, Kenneth & Bolin, Bert & Costanza, Robert & Dasgupta, Partha & Folke, Carl & Holling, C.S. & Jansson, Bengt-Owe & Levin, Simon & Mäler, Karl-Göran & Perrings, Charles & Pimentel, David, 1996. "Economic growth, carrying capacity, and the environment," Environment and Development Economics, Cambridge University Press, vol. 1(01), pages 104-110, February.
  7. Hochman, Oded, 1981. "Land rents, optimal taxation and local fiscal independence in an economy with local public goods," Journal of Public Economics, Elsevier, vol. 15(1), pages 59-85, February.
  8. Hochman, Oded & Ofek, Haim, 1979. "A theory of the behavior of municipal governments: The case of internalizing pollution externalities," Journal of Urban Economics, Elsevier, vol. 6(4), pages 416-431, October.
  9. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
  10. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120, April.
  11. 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.
  12. Tietenberg, T. H., 1974. "Derived decision rules for pollution control in a general equilibrium space economy," Journal of Environmental Economics and Management, Elsevier, vol. 1(1), pages 3-16, May.
  13. McCluskey, Jill & Rausser, Gordon C., 2000. "Hazardous waste sites and housing appreciation rates," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0z9156qx, Department of Agricultural & Resource Economics, UC Berkeley.
  14. T. H. Tietenberg, 1978. "Spatially Differentiated Air Pollutant Emission Charges: An Economic and Legal Analysis," Land Economics, University of Wisconsin Press, vol. 54(3), pages 265-277.
  15. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
  16. Costanza, Robert, 1995. "Economic growth, carrying capacity, and the environment," Ecological Economics, Elsevier, vol. 15(2), pages 89-90, November.
  17. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September.
  18. Jill J. McCluskey & Gordon C. Rausser, 2003. "Stigmatized Asset Value: Is It Temporary or Long-Term?," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 276-285, May.
  19. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
  20. 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.
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Citations

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Cited by:
  1. Kyriakopoulou, Efthymia & Xepapadeas, Anastasios, 2013. "Spatial Policies and Land Use Patterns: Optimal and market allocations," Working Papers in Economics 566, University of Gothenburg, Department of Economics.
  2. Efthymia Kyriakopoulou & Anastasios Xepapadeas, . "Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations," DEOS Working Papers 1017, Athens University of Economics and Business.
  3. Regnier Camille & Sophie Legras, 2014. "Urban Structure and Environmental Externalities," INRA UMR CESAER Working Papers 2014/2, INRA UMR CESAER, Centre d'’Economie et Sociologie appliquées à l'’Agriculture et aux Espaces Ruraux.
  4. Kyriakopoulou, Efthymia & Xepapadeas, Anastasios, 2013. "Environmental policy, first nature advantage and the emergence of economic clusters," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 101-116.
  5. 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.
  6. Hochman, Oded, 2011. "Efficient agglomeration of spatial clubs," Journal of Urban Economics, Elsevier, vol. 69(1), pages 118-135, January.
  7. Efthymia Kyriakopoulou & Anastasios Xepapadeas, 2014. "Atmospheric Pollution in Rapidly Growing Urban Centers: Spatial Policies and Land Use Patterns," DEOS Working Papers 1407, Athens University of Economics and Business.

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