LAND USE IN THE PRESENCE OF AN ATMOSPHERE EXTERNALITY,WITH AND WITHOUT CORRECTIVE TAXES*

ABSTRACT. Total cleared area in a von Thünen land-use model drives an atmosphere externality which depresses agricultural productivity uniformly throughout the region. Exogenous events that encourage clearance and use of a larger cultivated area (output price or population increase) exacerbate the externality. Imposition of a simple, corrective tax on land rents does not reverse these patterns but does mitigate the increase in the externality and leaves cultivators with higher incomes than they would obtain without the tax. We examine an optimal tax on land rents, designed to maximize the social value of land rents in the region, and an output tax.