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Cross-sectoral pollution externalities and multiple equilibria

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  • Karp, Larry
  • Paul, Thierry

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.

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  • Karp, Larry & Paul, Thierry, 2019. "Cross-sectoral pollution externalities and multiple equilibria," Environment and Development Economics, Cambridge University Press, vol. 24(6), pages 624-642, December.
    • Handle: RePEc:cup:endeec:v:24:y:2019:i:6:p:624-642_5
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    1. Antoci, Angelo & Iannucci, Gianluca & Rocchi, Benedetto & Ticci, Elisa, 2023. "The land allocation game: Externalities and evolutionary competition," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 124-133.

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