Environmental Policy and the Collapse of the Monocentric City
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 - acts as a centrifugal force, while positive knowledge spillovers and a site with natural cost advantage act as centripetal forces. We study the agglomeration e ects caused by trade-o s between centripetal and centrifugal forces which eventually determine the distribution of economic activity across space. The rational expectations market equilibrium with spatially myopic environmental policy results either in a monocentric or in a polycentric city with the major cluster at the natural advantage site. The regulatorÃƒÂ¢Ã¯Â¿Â½Ã¯Â¿Â½s optimum results in a bicentric city which suggests that when environmental policy is spatially optimal, the natural advantage sites do not act as attractors of economic activity.
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