Concentration, Separation, and Dispersion: Economic Geography and the Environment

The paper investigates the spatial patterns of industrial location and environmental pollution in a new-economic-geography model. Factors of production and their owners are mobile, but factor owners are not required to live in the region in which their factors are employed. Under laisser-faire, a chase-and-flee cycle of location is possible: people, who prefer a clean environment, are chased by polluting industries, which want to locate geographically close to the market. Locational patterns under optimal environmental regulation include concentration, separation, dispersion and several intermediate patterns. Moreover, it is shown that marginal changes in environmental policy may induce discrete changes in locational patterns.