Abstract
This paper studies location externality with a simple model. Firstly, the paper shows that Nash (competitive) equilibrium locations can differ from that of social optimum, and that under what conditions Nash equilibrium location is not equal to that of social optimum. Secondly, we demonstrate that, by examining the impacts of transportation cost on locations, how the Nash equilibrium location can be brought to the social optimum location by imposing the toll tax or subsidies
