The Effect of Efficient Pricing of Air Pollution on Intraurban Land-Use Patterns

This paper presents an analysis of the effect of an efficient price system on the degree of suburbanization when there exists a stable source of pollution located in the center of the city. It is shown that the city becomes more suburbanized when the external effect, associated with the emission of pollutants, is internalized by proper taxation. Under the assumptions of the model, the introduction of efficient pricing (which internalizes the external effects) is not neutral with regard to the composition of consumption. The introduction of efficient pricing results in an increase in the consumption of housing and a decrease in the consumption of all other goods.