Externalities in the Urban Economy

Tinbergen Institute Discussion Paper No. 2003-078/3

28 Pages Posted: 22 Nov 2003

See all articles by Erik T. Verhoef

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Date Written: September 25, 2003

Abstract

This paper is concerned with the economics of urban externalities. We start by reviewing the literature on urban externalities, and observe that although many interesting contributions have been made, there seems to be sufficient scope and need for further research, both theoretically and empirically. We identify what we believe to be important advances to be pursued in future research on urban externalities. These include (1) the explicit consideration of mutual interactions between externalities; (2) a thorough analysis of the relationship between these externalities and urban form; and (3) a clear focus on (realistic) second-best policies. The importance of these issues is illustrated by developing a simple urban general equilibrium model in which we study the interactions between agglomeration externalities and pollution from commuting. Our results show that seemingly impossible findings from a non-spatial perspective, namely a simultaneous stimulation of agglomeration externalities and a reduction of environmental externalities, is in fact the outcome of first-best policies in our spatial model. Moreover, while the incentives from road pricing and labour subsidies would seem to be perfectly opposite in a non-spatial setting, leaving one of the two instruments redundant, our results show that their welfare effects may, in contrast, turn out to be strongly super-additive when a spatial perspective is taken.

Keywords: Urban equilibrium, environmental and agglomeration externalities, second-best regulation

JEL Classification: D62, R13, R14

Suggested Citation

Verhoef, Erik T. and Nijkamp, Peter, Externalities in the Urban Economy (September 25, 2003). Tinbergen Institute Discussion Paper No. 2003-078/3, Available at SSRN: https://ssrn.com/abstract=457580 or http://dx.doi.org/10.2139/ssrn.457580

Erik T. Verhoef (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
454
Abstract Views
2,693
rank
76,176
PlumX Metrics