Biodiversity and geography

We combine a new economic geography model of agglomeration and dispersion of economic activity with an ecological-economic model of species diversity to examine optimal policies of biodiversity conservation in a two-region world. Species diversity is inevitably impaired by anthropogenic impact. Thus, the economic and ecological systems compete for space and the question arises as to how this conflict should be resolved. The decisive parameters of the model are related to biological diversity (endemism vs. redundancy of species) and the patterns of economic geography (centrifugal vs. centripetal forces). As regards the choice of environmental-policy instruments, it is shown that Pigouvian taxes do not always establish the optimal allocation.