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Cross-sectoral pollution externalities and multiple equilibria

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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Larry Karp, Thierry Paul. Cross-sectoral pollution externalities and multiple equilibria. Environment and Development Economics, Cambridge University Press (CUP), 2019, 24 (6), pp.624-642. ⟨10.1017/S1355770X19000147⟩. ⟨hal-02469871⟩

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