| Abstract: | This paper explores the economics and politics of the siting of noxious facilities. In the base case, facilities are sited by markets, subject to majority agreement in the host jurisdiction. By contrast with the existing market siting literature-which assumes that all the disamenities of a facility will be contained in the host jurisdiction and fully reflected in the jurisdiction′s willingness to accept-here facilities impose disamenities on individuals as a function of distance, and the process of majority agreement is explicitly modeled. The principal finding is that when voters are uniformly distributed within a jurisdiction, an individual who is median distance from a facility suffers less than average (mean) disamenity. Therefore a majority would be willing to serve as facility host for a price (host fee) that is strictly less than the aggregate disamenity that the facility imposes on the jurisdiction. Further, by threatening the equilibrium host with a site just across its border, a firm can induce majority acceptance of a nontrivial facility at zero host fee. Even when this threat site strategy is infeasible, though, market-determined host fees will not signal efficient sites. Thus, markets will produce an excessive number of noxious facilities and place them in the wrong sites. These results are robust to alternative specifications of bargaining power and market structure. If, however, host majority agreement is subject to the veto of a higher jurisdiction-e.g., in response to cries of "NIMBY"-then efficiency may be either improved or reduced. |
