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Cross-sectoral pollution externalities and multiple equilibria

Published online by Cambridge University Press:  21 June 2019

Larry Karp  and
Thierry Paul
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: karp@are.berkeley.edu
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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.

Keywords

coordination gamescosts of adjustmentcross-sectoral pollutionfactor reallocationlearning-by-doingintersectoral migrationmultiple equilibriaC61J21O13R23
Type
Research Article
Information
Environment and Development Economics , Volume 24 , Special Issue 6: The Economics of Climate Change and Sustainability (Part A) , December 2019 , pp. 624 - 642
Copyright
Copyright © Cambridge University Press 2019 

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