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Cross-sectoral pollution externalities and multiple equilibria

Published online by Cambridge University Press:  21 June 2019

Larry Karp*
Affiliation:
Department of Agricultural and Resource Economics, University of California, Berkeley, CA, USA
Thierry Paul
Affiliation:
Aix Marseille University, CNRS, Marseille, France
*
*Corresponding author. Email: [email protected]

Abstract

In familiar models, a decrease in the friction facing mobile factors (e.g., lowering their adjustment costs) increases a coordination problem, leading to more circumstances where there are multiple equilibria. We show that a decrease in friction can decrease coordination problems when a production externality arises from a changing stock, e.g. of pollution or knowledge. In general, the relation between the amount of friction that mobile factors face and the likelihood of multiple equilibria is non-monotonic.

Type
Research Article
Copyright
Copyright © Cambridge University Press 2019 

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