Buying Ecological Services: Nature’s Harmonies, Fragmented Reserves and the Agricultural Extensification Debate

David A. Hennessy, Harvey E. Lapan
November 2008  [08-WP 482]

Growing demand for cropland products has placed intense pressure on the ability of land resources to support nature, straining public budgets to purchase environmental goods. Fixing overall agricultural output, two policy options are whether to promote more extensive and nature friendly farming practices or to produce intensively on some land and leave the rest wild. Microeconomic models of the topic have not accommodated widely recognized complementary spatial externalities in providing ecological services. This article does so, identifying also a third policy possibility. This is that environmental services can follow a smoothly varying spatial path characterized by harmonic functions.

Keywords: biofuels, environmental policy, spatial externalities, Wirtinger's inequality.

JEL classification: H40, Q28, D62.

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