Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations
Date of This Version
September 2009
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 emissions - 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 effects caused by trade-offs between centripetal and centrifugal forces. The above effects govern firms’ location decisions and as a result, they define the distribution of economic activity across space. We derive the rational expectations equilibrium and the social optimum, compare the outcomes and characterize the optimal spatial policies.
Recommended Citation
Xepapadeas, Anastasios and Kyriakopoulou, Efthymia, "Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations" (September 16, 2009). Fondazione Eni Enrico Mattei Working Papers. Paper 331.
https://services.bepress.com/feem/paper331