The impact of production network economies on spatially-contiguous conservation– Theoretical model with evidence from the U.S. Prairie Pothole Region

This paper examines the impact of production network economies on designing cost-effective conservation targeting strategies. We first develop a theoretical model to study the decision to convert land from an extensive (or biodiversity-friendly) use to an intensive use (e.g., crop agriculture) in the presence of network economies in land use returns. The model supports the possibility of multiple land use equilibria due to network economies and identifies policy outcomes that increase welfare. Bandwagon effects can occur whereby spatial production spillovers from lands under intensive use can prompt further conversions on proximate lands under extensive use. Conversely, conservation sites can be placed strategically to block conversion cascades. Lands that support moderate ecological benefits but have strong intensive use potential are desirable conservation targets when these preempt conversion cascades, which is in contrast with the conservation strategies that aim to maximize ecological benefits per unit cost. When network economies exist in land use returns as well as in ecological benefits, a Pigouvian subsidy is shown to favor extensive land cover while a subsidy payment upon preservation of adjacent lands can tilt incentives in favor of either land use. We illustrate our findings with landscape-level simulations calibrated to the U.S. Prairie Pothole Region (PPR). Finally, we estimate grassland conversion hazard by employing satellite imagery to provide statistical evidence for land use network economies in the PPR.