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Locational Stratification by Environment

Authors


  • Been-lon Chen, Academia Sinica. Chien-chieh Huang, Soo-chow University. Ping Wang, Department of Economics, Washington University in St. Louis, St. Louis, MO 63130-4899 (pingwang@wustl.edu).

  • We are grateful for insightful suggestions from Marcus Berliant, John Conley, Masa Fujita, Shin-Kun Peng, an Associate Editor, and two anonymous referees, as well as participants at the Midwest Economic Theory and International Trade Meeting and the Regional Science Association Meeting. Yin-Chi Wang and Chia-Ming Yu provided invaluable research assistance. Financial support from Academia Sinica and the Weidenbaum Center on the Economy, Government, and Public Policy to enable this international collaboration is also gratefully acknowledged. Needless to say, the usual disclaimer applies.

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.

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