Working Paper : 1018


Authors Kyriakopoulou, E. and Xepapadeas, A.
Title Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations
Abstract 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.
Keywords Agglomeration, Space, Pollution, Environmental Policy, Knowledge Spillovers, Transportation Cost
Classification JEL R38, Q58
File Environmental_Policy_Spatial_Spillovers.pdf (403046 bytes)
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