Spatial Environmental and Resource Economics

Although the spatial dimension is embedded in the vast majority of issues studied by environmental and resource economics, its incorporation into economic models - especially in the form of explicit introduction of a spatial transport mechanism - is not widespread. As a result, important aspects of these issues may not be accounted for, which could lead to regulatory inefficiencies. In this paper, the major spatial transport mechanisms are discussed, along with the way in which they can be incorporated into forward-looking optimizing economic models. Furthermore, an extension of Pontryagin's maximum principle under spatial dynamics is provided and the emergence of spatial pattern formation through optimal Turing instability is explained. A number of examples of the use of spatial dynamics illustrate why space matters in environmental and resource economics. Moreover, the differentiation of policy when spatial transport mechanisms are taken into account is presented. The tools presented in the paper, along with their applications, provide a path for future research in environmental and resource economics in which the underlying spatial dimension - which is very real - is fully taken into account.