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Negative Externality, Heterogeneous Individuals and the Systems of Cities


  • Unimonen, S.


This paper analyzes a local pollution problem in a club framework. Polluting firms and their labor force form a system of cities. Emissions are created as a byproduct by the firm, and the deterioration of the environment is suffered by the residents of the city. The model has two types of individual who deffer in their preferences and productive skills. The paper determines when cities with homogeneous, mixed or partially mixed populations are optimal. Utilizing a competitive developer model, the paper also examines the existence and nature of equilibrium. It is shown that an efficient solution to the externality problem is attained by competitive forces alone without the intervention of the government.

Suggested Citation

  • Unimonen, S., 2000. "Negative Externality, Heterogeneous Individuals and the Systems of Cities," University of Helsinki, Department of Economics 490, Department of Economics.
  • Handle: RePEc:fth:helsec:490

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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies


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