Externalities, environmental pollution and allocation in space: A general equilibrium approach

A general equilibrium model of environmental externalities is extended to include a spatial dimension to take into consideration the different waste assimilative capacities of the receiving bodies and relocation of economic activities a, a policy measure. Generation of residuals is basic to the approach. The main elements of the model are: utility functions, production functions, modification functions, diffusion functions and environmental service production functions.

The residuals generate cost by reducing the qualities of environmental services enjoyed as public goods by the consumers and the amount of resources available for productive use.