NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by B. Andrew Chupp

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Working Papers

January 2010Heterogeneous Harm vs. Spatial Spillovers: Environmental Federalism and US Air Pollution
with H. Spencer Banzhaf: w15666
The economics of environmental federalism identifies two book-end departures from the first-best, which equates marginal costs and benefits in all local jurisdictions. Local governments may respond to local conditions, but ignore inter-jurisdictional spillovers. Alternatively, central governments may internalize spillovers, but impose uniform regulations ignoring local hetero-geneity. We provide a simple model that demonstrates that the choice of policy depends crucial-ly on the shape of marginal abatement costs. If marginal costs are increasing and convex, then abatement cost elasticities will tend to be higher around the local policies. This increases the deadweight loss of those policies relative to the centralized policy, ceteris paribus. Using a large simulation model, we then...

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