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Equilibrium and Efficient Land-Use Arrangements under Spatial Externality on a Lattice

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  • Alexander E. Saak

Abstract

Many cases of externalities in agricultural production, such as pesticide drift, cross-pollination, and offensive odors, are attributable to the incompatibility of neighboring land uses and exhibit distance dependence. We characterize equilibrium spatial patterns of externality-generating and -receiving land uses on a two-dimensional lattice with noncooperative, profit-maximizing producers. In equilibrium, generators or recipients form one or more neighborhoods with certain geometric properties, depending on how an externality dissipates with distance and whether there is an externality generated outside the region's boundaries. Efficient land-use arrangements maximize social welfare subject to the implementability constraints stipulating that no farm-level activity, except for land use, can be directly controlled by the social planner. We characterize efficient land-use arrangements when the return to recipient land use decreases linearly with the length of the border shared with incompatible land uses. Under these assumptions, we find circumstances in which an efficient activity arrangement belongs to the set of the Nash equilibrium outcomes. Also, efficient arrangements in a more general case are discussed.

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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 04-wp376.

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Date of creation: Oct 2004
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Handle: RePEc:ias:cpaper:04-wp376

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Keywords: graph partitioning; land-use arrangement; spatial externality; supermodular game.;

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  1. Antoni Calvó-Armengol & Yves Zenou, 2003. "Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behavior," Working Papers 52, Barcelona Graduate School of Economics.
  2. Munro, Alistair, 2008. "The spatial impact of genetically modified crops," Ecological Economics, Elsevier, vol. 67(4), pages 658-666, November.
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Cited by:
  1. Lewis, David J. & Wu, JunJie, 2005. "Optimal Economic Landscapes with Habitat Fragmentation Effects," 2005 Annual meeting, July 24-27, Providence, RI 19425, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Ambec, Stefan & Langinier, Corinne & Marcoul, Philippe, 2012. "Spatial Efficiency of Genetically Modified and Organic Crops," Working Papers 125232, Structure and Performance of Agriculture and Agri-products Industry (SPAA).

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