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Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

  • Efthymia Kyriakopoulou
  • Anastasios Xepapadeas

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 1018.

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Handle: RePEc:aue:wpaper:1018
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  1. Yannis M. Ioannides & Henry G. Overman & Esteban Rossi-Hansberg & Kurt Schmidheiny, 2007. "The effect of information and communication technologies on urban structure," LSE Research Online Documents on Economics 19700, London School of Economics and Political Science, LSE Library.
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  9. 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..
  10. 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.
  11. Hochman, Oded & Rausser, Gordon C. & Arnott, Richard J, 2008. "Pollution And Land Use: Optimum And Decentralization," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6hg02091, Department of Agricultural & Resource Economics, UC Berkeley.
  12. 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.
  13. 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.
  14. Paul Krugman, 1998. "Space: The Final Frontier," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 161-174, Spring.
  15. 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.
  16. 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.
  17. 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.
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