A Dynamic Theory Of Spatial Externalities

Raouf Boucekkine (), Giorgio Fabbri, Salvatore Federico () and Fausto Gozzi
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Salvatore Federico: Università degli Studi di Siena, Dipartimento di Economia Politica e Statistica

No 2020017, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In this paper, we revisit the theory of spatial externalities. In particular, we depart in several respects from the important literature studying the fundamental pollution free riding problem uncovered in the associated empirical works. First, instead of assuming ad hoc pollution diffusion schemes across space, we consider a realistic spatiotemporal law of motion for air and water pollution (diffusion and advection). Second, we tackle spatiotemporal non-cooperative (and cooperative) differential games. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is infinite. Third, we allow for a rich set of geographic heterogeneities across states while the literature assumes identical states. We solve analytically the induced non-cooperative differential game under decentralization and fully characterize the resulting long-term spatial distributions. We further provide with full exploration of the free riding problem, reflected in the so-called border effects. In particular, net pollution flows diffuse at an increasing rate as we approach the borders, with strong asymmetries under advection, and structural breaks show up at the borders. We also build a formal case in which a larger number of states goes with the exacerbation of pollution externalities. Finally, we explore how geographic discrepancies affect the shape of the border effects.

Keywords: Spatial externalities; environmental federalism; transboundary pollution; differential games in continuous time and space; infinite dimensional optimal control problems (search for similar items in EconPapers)
JEL-codes: C61 C72 O13 O44 Q53 R12 (search for similar items in EconPapers)
Date: 2020-05-07
New Economics Papers: this item is included in nep-agr, nep-env, nep-geo, nep-ore and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://sites.uclouvain.be/econ/DP/IRES/2020017.pdf (application/pdf)

Related works:
Journal Article: A dynamic theory of spatial externalities (2022)
Working Paper: A dynamic theory of spatial externalities (2022)
Working Paper: A dynamic theory of spatial externalities (2022)
Working Paper: A dynamic theory of spatial externalities (2021)
Working Paper: A Dynamic Theory Of Spatial Externalities (2021)
Working Paper: A dynamic theory of spatial externalities (2021)
Working Paper: A dynamic theory of spatial externalities (2020)
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