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Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

  • Anastasios Xepapadeas
  • Efthymia Kyriakopoulou

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.

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Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1016.

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Handle: RePEc:aue:wpaper:1016
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  1. Yannis M. Ioannides & Henry G. Overman & Esteban Rossi-Hansberg & Kurt Schmidheiny, 2008. "The effect of information and communication technologies on urban structure," Economic Policy, CEPR;CES;MSH, vol. 23, pages 201-242, 04.
  2. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December.
  3. 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.
  4. Sonia Ben Kheder & Natalia Zugravu, 2008. "The pollution haven hypothesis : a geographic economy model in a comparative study," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00344845, HAL.
  5. Natalia Zugravu & Sonia Ben Kheder, 2008. "The Pollution Haven Hypothesis: A Geographic Economy Model in a Comparative Study," Working Papers 2008.73, Fondazione Eni Enrico Mattei.
  6. Oded Hochman & Gordon Rausser & Richard Arnott, 2008. "Pollution and Land Use: Optimum and Decentralization," Working Papers 200805, University of California at Riverside, Department of Economics, revised Mar 2008.
  7. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
  8. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
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  12. Michael Greenstone, 1998. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufacturers," Working Papers 787, Princeton University, Department of Economics, Industrial Relations Section..
  13. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
  14. Vernon Henderson, 1995. "Effects of Air Quality Regulation," NBER Working Papers 5118, National Bureau of Economic Research, Inc.
  15. Elbers Chris & Withagen Cees, 2003. "Environmental Policy, Population Dynamics and Agglomeration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-23, December.
  16. 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.
  17. Lange Andreas & Quaas Martin F, 2007. "Economic Geography and the Effect of Environmental Pollution on Agglomeration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-33, October.
  18. Paul Krugman, 1998. "Space: The Final Frontier," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 161-174, Spring.
  19. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
  20. 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.
  21. Tahvonen Olli & Kuuluvainen Jari, 1993. "Economic Growth, Pollution, and Renewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 101-118, March.
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