Economic Impacts of Edge Effects Externalities on Land Use Decisions

This paper examines the theoretical impacts of spatial externalities whose marginal impacts decline with distance, referred to as “edge effect externalities”. A simple one dimensional model appropriate for analysis of policy measures and the potential for bargaining between affected agents is outlined, and the production impacts of this class of externalities are illustrated. Edge effect externalities create an incentive for the recipient to distance himself from the generator. Further, they imply that land use fragmentation will lead to non-linear declines in production possibilities. Due to the potential for asymmetric positive externalities between recipients, bargaining may be required to achieve the optimal arrangement, as well as allocation, of land uses. Copyright 1998 by Dawn C. Parker. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Thanks to Jim Wilen, Doug Larson, and fellow colleagues at U.C. Davis for helpful comments. All errors are mine.