Abstract
The siting of an ‘efficient’ noxious facility may decrease social welfare if people care about horizontal equity. The facility decreases the relative attractiveness of the host city, decreasing land rent in the host city and increasing land rent elsewhere. Victim compensation, which promotes horizontal equity at the expense of efficiency, will increase social welfare if (a) the demand for land is relatively inelastic, (b) the demand for the output of the noxious facility is relatively elastic, and (c) the preferences for horizontal equity are relatively strong.
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