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POLLUTION MOBILITY, PRODUCTIVITY DISPARITY, AND THE SPATIAL DISTRIBUTION OF POLLUTING AND NONPOLLUTING FIRMS*: SPATIAL DISTRIBUTION OF POLLUTING AND NONPOLLUTING FIRMS

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Abstract

This paper first develops a model to characterize the equilibrium distribution of polluting and nonpolluting firms and then turns to the larger question of whether the equilibrium distribution is socially optimal. We find that the equilibrium distribution of polluting firms differs from the social optimum when they generate a large amount of stationary pollution and have much higher or lower productivity than clean firms. In these cases, conventional pollution control approaches generally do not bring about an optimal distribution. Consideration of transport costs along with productivity and pollution changes some of the classic results of the new economic geography literature.

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... The model can also be interpreted in a way that incorporates pollution spillovers, as in Wu and Reimer (2016). In this interpretation, a household incurs a damage of ( + 1) from a firm in the other (same) region. ...
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Since 1990 there has been a renaissance of theoretical and empirical work on the spatial aspects of the economy--that is, where economic activity occurs and why. Using new tools--in particular, modeling techniques developed to analyze industrial organization, international trade, and economic growth--this "new economic geography" has emerged as one of the most exciting areas of contemporary economics. The authors show how seemingly disparate models reflect a few basic themes, and in so doing they develop a common "grammar" for discussing a variety of issues. They show how a common approach that emphasizes the three-way interaction among increasing returns, transportation costs, and the movement of productive factors can be applied to a wide range of issues in urban, regional, and international economics. This book is the first to provide a sound and unified explanation of the existence of large economic agglomerations at various spatial scales.
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