Locational Stratification by Environment

Abstract

This paper develops an equilibrium sorting model wherein perfectly mobile agents decide their optimal residential locations, either in a clean city or in a dirty city where production takes place. While residents in a dirty city suffer a higher level of pollution, they incur less commuting cost when going to work. When workers of different abilities choose different locations in which to reside, a segregated spatial configuration emerges, where those residing in a clean city have higher working time, human capital, and income than those in the dirty city. Analytic comparative-static and numerical welfare analyses are performed.

Payments from Households to Distant Polluting Firms

“…Thirdly, we model the land rental market. Chen et al (2012) model agents' location choice between two cities: The dirty city where all the manufacturing takes place and the clean city. In equilibrium the agents with the highest ability to work live in the clean city, trading off a cleaner environment against higher commuting costs.…”

“…The authors find that there can be multiple equilibria, differing in the relative size of the two cities. While Chen et al (2012) assume only households are mobile, we also include firm mobility, which allows us to analyze the location choice effects of payments from households in one area to firms in the other area. Unlike Chen et al (2012), we model the land rental market, but we abstract from household heterogeneity and commuting costs.…”

“…If residents in these areas also tend to be poor and from ethnic minorities, this will fuel concerns of environmental justice (Grainger and Ruangmas 2018;Banzhaf et al 2019). A tendency for richer households to move to cleaner areas would further exacerbate these concerns (Chen et al 2012;Binner and Day 2018).…”

Taxing pollution: agglomeration and welfare consequences

“…From (10) and (11), we can thus depict in Figure 1 the labor allocation between clean and dirty sectors under the integrated equilibrium.…”