Urban returns to scale and environmental resources: an estimate of environmental externalities in an urban production function

The paper deals with the measurement of the economic advantages and environmental disadvantages of an urban setting. Based on a large sample of Italian cities, the paper provides results from an estimate of an urban production function which contains, in addition to the traditional labour and capital production factors, a variable representing the environmental resource consumption and the negative environmental externalities associated with urban life. A major result highlighted in the paper is that cities have in themselves mechanisms to favour an efficient consumption of environmental resources; however, the use of these resources has a cost in terms of environmental output of negative externalities that are generated on the environment and which become worse by increasing the urban size.