Atmospheric Pollution in Rapidly Growing Urban Centers: Spatial Policies and Land Use Patterns

Abstract

We study the optimal and equilibrium distribution of industrial and residential land in a given region. The trade-o¤ between the agglomeration and dispersion forces, in the form of pollution from stationary forces, production externalities, and commuting costs, determines the emergence of industrial and residential clusters across space. In this context, we de ne two kinds of spatial policies that can be used in order to close the gap between optimal and market allocations. More speci cally, we show that the joint implementation of a site-speci c environmental tax and a site-speci c labor subsidy can reproduce the optimum as an equilibrium outcome. The methodological approach followed in this paper allows for endogenous determination of land use patterns and is shown to provide more precise results compared to previous studies.