Shadow Market Area for Air Pollutants

Abstract

This study identifies the shadow market area of air pollutants on the basis of the Gaussian plume model. Since pollutants are dispersed by wind, transport costs are irrelevant in its formation. Pollutant distribution on the ground level has an asymmetric bell shape in the wind direction. In addition to the linear functions, the exponential and quadratic shadow price functions are considered for the compensation of a health hazard to consumers, where the strict liability in the framework of the Coase theorem applies. The shadow market area for pollutants is shell shaped. This specific characteristic has an implication for market boundaries between polluters and their location decisions.