Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/120473
Authors: 
Berliant, Marcus
Peng, Shin-Kun
Wang, Ping
Year of Publication: 
2012
Series/Report no.: 
52nd Congress of the European Regional Science Association: "Regions in Motion - Breaking the Path", 21-25 August 2012, Bratislava, Slovakia
Abstract: 
This paper demonstrates that a pollution tax with a fixed cost component may lead, by itself, to segregation between clean and dirty firms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely stratified configuration with all dirty firms clustering in one city emerges as the only equilibrium outcome when there is a fixed cost component of the pollution tax. Moreover, a stratified Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax. To support such a stratified Pareto optimum, however, an effective but unconventional policy pre-scription is to redistribute the pollution tax revenue from the dirty to the clean city residents.
Subjects: 
Pollution Tax
Agglomeration of Polluting Producers
Endogenous Stratification
JEL: 
D62
H23
R13
Document Type: 
Conference Paper

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