Abstract Chapter 14 examines the origin, impact, and solution of local and global pollution on cities. The direct health impacts of local pollution are illustrated empirically. More compact cities may decrease the emission of global pollutants (CO2) but may also increase the density of local pollution. Local pollution can also be addressed by relocation of firms, as this changes the polluting commuting flows. But city governments can also opt for more direct environmental policies that reduce the volume of car use and make cars greener. Low emission zones are a popular policy and are more effective than vehicle plate-type restrictions. Global pollutants affect the Earth’s climate for centuries to come, though their impacts vary across locations. As a global climate policy is difficult to enforce, emission reductions will rely on cleaner equipment innovations and on climate change adaptation by migration and relocation of production.

CHANAkYA is a comprehensive game-theoretical framework for pricing and tradable credit charging in complex transportation systems. It models strategic interactions among public authorities and private mobility providers, while incorporating multimodal travel options and heterogeneous traveller demographics. It supports link- and path-based tolls, alongside equivalent tradable credit schemes and allows demographic-differentiation. Additionally, the framework addresses the non-uniqueness of user-equilibrium path flows by incorporating player-specific perspectives.  Five policy-driven case studies inspired by Leuven demonstrate its applications. Results indicate an optimal cordon toll of approximately €1 and a near-zero optimal bus fare, producing substantial efficiency gains over the base scenario. Age-differentiated tolling offers only modest efficiency improvements while raising equity concerns. Tradable credit schemes replicate the efficiency gains of pricing. Further cases reveal efficiency losses from privatizing public transport and show how the government’s perspective influences optimal policies. Overall, CHANAkYA supports nuanced, effective, and equitable transport planning across complex strategic and multimodal settings.

Abstract This chapter argues that the price of agricultural land at a given location reflects the amount of a specific attribute available at that location. Such attributes include fertility (Ricardo) and the proximity to the market town (von Thünen). The common thread is that the price of land can be determined as an auction involving landlords and farmers. Nowadays, von Thünen’s model keeps its relevance when the market town is replaced by a large plant, using farmers’ outputs. The aggregate agricultural land rent was approximately 7 times the British GDP in 1700 and 4 times in 1810. Since then, the role of the agricultural sector kept decreasing across the globe.

Designing road pricing in multi-decision-maker scenarios is computationally demanding, particularly when using full-scale traffic models. This paper presents a novel metamodel-based equilibration (MBE) scheme that leverages a fast game-theoretical metamodel to compute optimal/equilibrium tolls for an underlying setup of full-scale traffic models.  MBE follows an iterative calibration–equilibration cycle: the metamodel is calibrated using full-scale outputs, game-theoretical equilibrium is computed by the metamodel, and the resulting tolls are passed back to the full-scale model, until a desirable outcome is identified. Unlike conventional surrogate approaches that approximate a single objective function, the metamodel in MBE approximates the entire transport system, thereby shifting the computational burden of toll equilibration to the metamodel, and enabling efficient analysis in multi-decision-maker settings. Applied to a real-world network with variable demand, MBE outperforms Bayesian Optimization for single-decision-maker problems and, for the first time, computes Nash and Stackelberg equilibria for multi-decision-maker problems in a full-scale traffic model.

Abstract This paper presents an economic analysis of the reduction of carbon emissions in the aviation sector. Aviation and shipping are both international and have high carbon abatement costs so both sectors can learn from each other. To what extent should we prioritize emission reductions in the aviation sector and what is the best way to do this. Climate change is a world public bad, and this results in too low mitigation efforts when countries pursue their own objectives. Pledges in the framework of international agreements like the Paris agreement for domestic aviation and the Corsia agreement for international aviation are unlikely to produce their full effects because the agreements are not enforceable. The effectiveness of three policy levers is examined in more detail. First, the European climate policy with the SAF blending mandate and the integration of domestic aviation in the European economy wide tradable emission system. Second the effectiveness of the Corsia agreement. Third, the possibilities of a fuel efficiency mandate imposed by the EU and or the US on their domestic aircraft producer.

Abstract Over the last decade, quantitative models have gained prominence in spatial economics. Spatial quantitative economics stresses the importance of linkages across locations through gravity equations that show how a particular location is more affected by nearby locations than by distant places. By applying a simple quantitative setting to a very simple geography, we show how consumers with heterogeneous preferences, amenities, increasing returns, and commuting costs interact to give rise to contrasted spatial patterns. The existence of multiple equilibria is not rare. We illustrate the working of quantitative models through two applications. The first one studies how labor supply in a system of regions is affected by a demand shock through workers’ spatial behavior who can choose to live and work in the same region or to commute between regions. The second one focuses on the impact of a large urban public works program on employment in Addis Ababa, Ethiopia.

Norway may become one of the first countries in the world to develop and implement a national distance-based road pricing system. This is largely motivated by the sizeable government revenue shortfall due to the world-leading phase-in of battery electric vehicles. The recent government-initiated formal Concept Study, with detailed numerical simulations, assessed alternative options including spatial and time-of-day differentiation. The final recommendation includes a distance charge for electric vehicles but without spatial or time-of-day differentiation. While welfare enhancing compared to current policies, this recommendation foregoes 7 billion NOK in net present value compared to the concept with highest net present value. In addition, the process has stalled at the political level. We analyze transport and welfare implications of the concepts and discuss the main challenges of the effectiveness of reform and of its actual implementation. We argue that at the heart of the political stalemate is the vertical tax competition between a central government losing its fuel tax revenues and the local governments that need to co-finance local transport projects via earmarked tolls. Combining two government levels with stringent tax revenue concerns with the objective of aligning the user prices with widely diverging external costs is a difficult undertaking.

Abstract In 2019 total built-up land (villages, towns, cities, and human infrastructure) varies, according to the definition of what urban land is, from 1% to 3% of the world’s habitable land. Thus, there seems to be a vast oversupply of land. Yet, in 2002 the value of residential land in the U.S. was twice its GDP. So, what determines the urban land rent? As will be seen throughout this chapter, the answer is unambiguous: the land rent capitalizes the scarcity of land at a given location with respect to attributes that are locally provided. Examples of such attributes include proximity to the workplace as well as to specific sites that provide amenities, e.g., schools, the sea or a lake, shopping areas, and leisure facilities. The sorting of heterogeneous workers within cities also explains why spatial segregation is a stable outcome.

Abstract In this chapter, we allow both firms and labor to move across regions. The mobility of capital and the mobility of labor do not obey the same rules. The movement of capital to a region brings its production capability, but the returns to capital do not have to be spent in the same region. By contrast, workers bring with them both their production and consumption capacities. We provide a full analytical solution to Krugman’s core-periphery model, which predicts that if decreases in trade or transportation costs are sufficiently strong, the economy moves from a spatially uniform distribution of activities to a core-periphery structure in which mobile activities are agglomerated in one region, while the other region retains only immobile activities. Unfortunately, the result is not robust when workers are heterogeneous in their attitude toward migration or when agglomeration generates higher urban costs.

Abstract In this chapter, we discuss the origin and scope of retailing. Because big cities host populations that display more variation in tastes and incomes, they can sustain a larger number of firms selling a great variety of products. A shopping street is a cluster of physical stores. The main reason for a shopping street to emerge is the possibility of making one-stop and multipurpose trips. The clustering of stores selling different goods creates a demand externality: because they travel only once to the shopping street, households save on shopping and search costs. This demand externality incentivizes stores to cluster. In many cities, the entry of malls has led to the exit of conventional retailers and even to the complete disappearance of town centers. We examine the conditions under which a shopping street can withstand competition from, or be overtaken by, a shopping mall situated on the city’s outskirts.

Abstract This chapter studies the spatial nature of interregional trade. Regions are not endowed with the same comparative advantages, and regional specialization may also be the outcome of activities displaying increasing returns. One of the most robust empirical facts in economics is the Gravity Law that links bilateral trade flows to countries’ GDPs and the distance between them. Rather than the death of distance, data on trade flows spanning 1910 to 2014 suggest that distance has become considerably more important over the last century. Conditions for no trade, one-way, and two-way trade to arise under perfect and monopolistic competition are derived. The literature treats the transportation sector as a black box through a given transportation rate. This assumption is not innocuous because competition among carriers interacts with competition among firms that produce the load.

Abstract Spatial Economics provides a framework for understanding how economic activities organize spatially, shaped by the trade-off between increasing returns to scale and transportation costs. The book highlights the tension between forces driving agglomeration—such as shared inputs, labor market matching, and knowledge spillovers—and those driving dispersion, including transportation costs, land scarcity, and congestion. This interplay explains the geographic inequalities that define modern economies. The dual role of land and transportation is central. Land is immobile and inelastically supplied, driving competition for prime locations and disparities in economic outcomes. Transportation connects spatially separated agents, enabling markets and agglomeration but imposes costs that influence locational choices. Together, these factors explain the formation and persistence of cities, regional clusters, and global economic patterns. The book combines classical theories with modern tools, shedding light on mechanisms shaping urban growth, regional disparities, and land market dynamics. It emphasizes how market failures—arising from externalities, imperfect competition, and transport frictions—interact with geographic forces. Policy issues, such as the effects of infrastructure investments, land-use regulations, and place-based interventions, are analyzed with a focus on their implications for inequality and welfare. By synthesizing theoretical insights with empirical evidence through econometric methods and quantitative spatial equilibrium models, the book provides a robust framework for addressing pressing challenges in urbanization, inequality, and sustainable development in the 21st century.

The EU aims to achieve climate neutrality for trucks. This paper compares the user cost of diesel trucks, battery electric trucks, and trucks that rely on overhead lines in a decision context where the developments of battery costs and overhead line investment and maintenance costs are uncertain. The user costs contain the truck capital cost and the energy costs, the possible vehicle-to-grid benefits, driver costs, and other distance costs. User costs are compared for different distance profiles and optimized battery sizes. The possible user cost developments serve as input to an analysis of investment decisions in electric motorways (e-roads). The economics of e-roads is analyzed for two representations of the EU TEN-T network. In the first analysis, average EU truck flow (veh/h) and truck trip characteristics are used. In the second representation, we consider domestic and international truck transport between two neighbouring countries with strongly diverging average traffic flows and shares of international truck trips on their TEN-T network. This allows for the analysis of the non-cooperative and cooperative solutions of the two countries. The installation of e-roads appears to be a robust investment decision for the motorways of large countries that have dense truck traffic but not for less dense countries. Cooperation between countries may increase total benefits due to economies of scale.

We develop a three-stage game with three governments, a EU-US aircraft production duopoly, and competitive airlines. The model determines the optimal combination of fossil fuel taxes and fuel efficiency standards to decarbonize the aviation sector with imperfect competition and technological spillovers, under various government cooperation levels. We find that without international cooperation, technology spillovers prevent large efficiency investments. Fuel taxes are low but exceed domestic climate damages in regions without aircraft production. Regions with domestic aircraft producers subsidize aviation when the social cost of carbon is low. Second, EU-US cooperation increases fuel efficiency, but fuel taxes are lower than without cooperation, such that carbon emission reductions are limited both with and without cooperation. Third, global cooperation yields the largest efficiency gains, but fuel taxes remain below the world climate damage. Finally, achieving net-zero emissions requires a combination of fuel efficiency, demand reduction through higher fuel taxes, and new aviation fuels.

This paper explores the obstacles to implementing climate change policies, emphasizing the interplay of economic, social, and political factors. Important barriers are the non-enforceability of international agreements and politicians motivated by a short-run goal of retaining office. A stable national legal framework is required that integrates clear principles, enforceable regulations, proactive judicial oversight, and inclusive public participation to bridge the gap between ambitious goals and feasible outcomes. Social acceptability of efficient instruments such as carbon taxes is also a constraint. Implementation problems are illustrated using the European automobile sector. The European Union has imposed a ban on the sale of new thermic vehicles after 2034. The ban will lead to job losses, regional economic disparities, and potential social unrest. Electric vehicles are still more costly than thermic vehicles, and they do not address congestion, safety, and parking externalities. Ultimately, a multifaceted, interdisciplinary, and inclusive approach is vital for combating climate change.

This paper presents a game-theoretical model of road pricing. The model incorporates an endogenized demand and path-choice user-equilibrium with variable user demand and multiple user classes. Different to most of the literature, the proposed model allows to compute in a direct way the optimal tolls, rather than by trial and error of exogenous toll values and tackles the problem of inactive paths that can become active (and vice-versa). Additionally, games with multiple government in different settings can be solved. We proceed in four stages. Firstly, the user-equilibrium model is developed to predict the response of general users to toll instruments of the government(s). Modelling of multiple user classes allows to differentiate users who have different Value of Time and Willingness-To-Pay for their trips. Further, it allows such users to be targeted by different toll instruments. Secondly, a single-player optimization problem is formulated to find optimal toll values for a government acting as a Stackelberg leader over the users. Thirdly, to handle the non-uniqueness of user-equilibrium path flows, a heuristic-based post-processing method is presented that helps in identifying suitable access restrictions necessary to avoid the suboptimal user responses. Fourthly, the single-player optimization problem is used as a building block to develop a general game-theoretical framework that can be applied to different competition scenarios between different types of governments with each, possibly, tolling a different part of the network or the society. The model is, then, applied to four illustrative case-studies. The first case-study involves a single-player optimization problem and ends with a comparison of three solution methods. Mixed Integer Quadratic Program is shown to be the fastest as well as the most consistent. The second case-study involves a game-theoretical problem with two governments and two user classes, and four competition scenarios are elaborated. It is demonstrated how the central objective function can only be worsened by any type of competition between players, and that players have an incentive to take leadership to convert a Nash game to a Stackelberg game. The third case study specifically addresses the non-uniqueness of user-equilibrium path flows, and two different levels of access restrictions are assessed in the post-processing. Finally, the fourth case study shows an application of the single-player optimization problem to a real-world urban mobility problem.

This paper analyzes the different climate policies that are used by the EU in the aviation sector. Using a simple model, we study their effects on welfare as well as on their acceptability. The efficiency and acceptability depend on the strength of the international agreements (Paris, 2015; CORSIA, 2020) and on the implementation of the policy within the EU. Four different policies are discussed: carbon taxes, tradeable emission permits, Sustainable Aviation Fuels (SAF) blending mandates and fuel efficiency standards for new aircrafts. The Paris and the CORSIA agreements are both weak agreements where, in the absence of sanctions, the implementation depends on the will of the political majority of the moment. In terms of implementation, it is shown that for intra EU aviation, the insertion of aviation in the EU-ETS with partially auctioned emission permits is probably the most robust and efficient implementation of the Paris agreement as it can result in net zero emissions in 2040–2050. Subsidies for R&D in fuel efficiency and new fuels would be good complements to the ETS system as they also have a positive spillover for the non-EU aviation via better aircrafts and better fuels. SAF mandates are likely to be inefficient implementations of climate policies, they exist because they are more acceptable for the airlines and intensive air transport users.