Wednesday 08 October 2025 10:00 - 11:00

SAL 2.04, 2nd Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH

About this event

Spatial environmental externalities arise when the location of emissions differs from the location of damages. We study this problem for air pollution, asking how cross-boundary transport of fine particulate matter (PM2.5) changes the design and welfare consequences of emission-control policy. When damages arise outside the emitting region, emission-control policies ignoring the source-impact disconnect risk misallocating the abatement burden. To quantify the impact of this spatial externality, we first construct province-by-province bilateral transport matrices that measure the extent of transboundary air pollution in China using particle trajectory data from atmospheric transport models. Stylized facts from these matrices show that: (1) transboundary inflows contribute unevenly to local pollution across different regions; (2) bilateral transport networks remain relatively stable over time; and (3) economically developed provinces in China receive substantial transboundary pollution. We then develop a dynamic spatial general equilibrium model that incorporates pollution transport, trade, and migration. Using this model, we estimate a 1.9% national welfare loss attributable to cross-boundary transport of pollution. To further unpack the distributional and policy implications, we simulate province-level emission taxes and trace how these policies ripple through the spatial economy. This allows us to identify which regions achieve the greatest welfare gains once transboundary air pollution is taken into account. Finally, we compare different allocation rules for emission control and find that a marginal-welfare-weighted allocation maximizes aggregate welfare.

Participants are expected to adhere to the CEP Events Code of Conduct.

Directions

This event will take place in SAL 2.04, 2nd Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.

International Economics Workshops are part of the CEP's Trade programme.