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Pattern formation, spatial externalities and regulation in coupled economic-ecological systems

  • Brock, William
  • Xepapadeas, Anastasios

We study the management of ecosystems in which interacting state variables that are affected by management decisions diffuse in space. We study pattern formation first in a setting where economic agents maximize myopic profits and ignore spillovers onto agents at other sites, and second in the context of a social planner who internalizes these spillovers. We compare patterns under these two institutions and study how the differences in the patterns generated by these two institutions impact the design of regulatory schemes to internalize the externalities. At the same time we introduce new methods based on Fourier series type decompositions that enable us to turn an intractable infinite dimensional optimal control problem into a countable number of finite dimensional optimal control problems. As far as we know these methods are new to the economics literature. Our theory is applied to the management and regulation of a semi-arid system.

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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 59 (2010)
Issue (Month): 2 (March)
Pages: 149-164

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Handle: RePEc:eee:jeeman:v:59:y:2010:i:2:p:149-164
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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  1. Costello, Christopher & Polasky, Stephen, 2008. "Optimal harvesting of stochastic spatial resources," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 1-18, July.
  2. JunJie Wu & Bruce A. Babcock, 1996. "Spatial Heterogeneity and the Choice of Instruments to Control Nonpoint Pollution," Center for Agricultural and Rural Development (CARD) Publications 96-wp164, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  3. Smith, Martin D. & Sanchirico, James N. & Wilen, James E., 2009. "The economics of spatial-dynamic processes: Applications to renewable resources," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 104-121, January.
  4. William A. Brock & Jose A. Scheinkman, 1974. "Global Asymptotic Stability of Optimal Control Systems with Applications to the Theory of Economic Growth," Discussion Papers 85, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Stephen Polasky & Jeffrey D. Camm & Brian Garber-Yonts, 2001. "Selecting Biological Reserves Cost-Effectively: An Application to Terrestrial Vertebrate Conservation in Oregon," Land Economics, University of Wisconsin Press, vol. 77(1), pages 68-78.
  6. Hochman, Eithan & Pines, David & Zilberman, David, 1977. "The Effects of Pollution Taxation on the Pattern of Resource Allocation: The Downstream Diffusion Case," The Quarterly Journal of Economics, MIT Press, vol. 91(4), pages 625-38, November.
  7. Feichtinger, Gustav & Novak, Andreas & Wirl, Franz, 1994. "Limit cycles in intertemporal adjustment models : Theory and applications," Journal of Economic Dynamics and Control, Elsevier, vol. 18(2), pages 353-380, March.
  8. Sanchirico, James N. & Wilen, James E., 2001. "A Bioeconomic Model of Marine Reserve Creation," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 257-276, November.
  9. Sanchirico, James N. & Wilen, James E., 1999. "Bioeconomics of Spatial Exploitation in a Patchy Environment," Journal of Environmental Economics and Management, Elsevier, vol. 37(2), pages 129-150, March.
  10. Brock, William & Xepapadeas, Anastasios, 2008. "Diffusion-induced instability and pattern formation in infinite horizon recursive optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2745-2787, September.
  11. James E. Wilen, 2007. "Economics of Spatial-Dynamic Processes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1134-1144.
  12. Smith, Martin D. & Wilen, James E., 2003. "Economic impacts of marine reserves: the importance of spatial behavior," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 183-206, September.
  13. Sanchirico, James N. & Wilen, James E., 2005. "Optimal spatial management of renewable resources: matching policy scope to ecosystem scale," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 23-46, July.
  14. Goetz, Renan U. & Zilberman, David, 2000. "The dynamics of spatial pollution: The case of phosphorus runoff from agricultural land," Journal of Economic Dynamics and Control, Elsevier, vol. 24(1), pages 143-163, January.
  15. Costello, Christopher & Polasky, Stephen, 2004. "Dynamic reserve site selection," Resource and Energy Economics, Elsevier, vol. 26(2), pages 157-174, June.
  16. Sanchirico, James N., 2005. "Additivity properties in metapopulation models: implications for the assessment of marine reserves," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 1-25, January.
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