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The International Yearbook of Environmental and Resource Economics 2005/2006

A Survey of Current Issues

Edited by Henk Folmer and Tom Tietenberg

The Yearbook provides a comprehensive overview of cutting-edge issues in environmental and resource economics.
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Chapter 2: Spatial environmental policy

Jacqueline Geoghegan and Wayne B. Gray


Jacqueline Geoghegan and Wayne B. Gray INTRODUCTION Many, if not most, natural resources are inherently spatial in location, quality or both. Consequently, human interactions with those natural resources are also spatial. Therefore, the benefits and costs of human actions will also vary over space, resulting in the need for policy instruments such as taxes, subsidies, tradable permits and other regulations that explicitly recognize this spatial dependence. However, while some subdisciplines of economics such as urban and regional economics have spatial relationships as a central focus of analysis, much of natural resource and environmental economics has been non-spatial. For economic processes that are inherently spatial, ignoring the spatial dimension in analysis is analogous to analysing a dynamic process without knowing the chronological order of events (Irwin and Geoghegan, 2001). Indeed, this dearth of spatial analysis in natural resource and environmental economics was raised by Deacon and colleagues a few years ago in a discussion of research opportunities: ‘The spatial dimension of resource use may turn out to be as important as the exhaustively studied temporal dimension in many contexts. Curiously, the profession is only now beginning to move in this direction’. (Deacon et al., 1998, p. 393). The recognition of the importance of space in economics arguably began with Hotelling (1929), in a model of consumers and producers distributed along a linear market. This model spawned an entire literature in industrial organization on product differentiation and spatial competition. Spatial analysis was subsequently advanced by the further development of models...

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