Specification of Spatial-Dynamic Externalities and Implications for Strategic Behavior in Disease Control

Abstract

We propose a novel, distance- and density-dependent specification of externalities that captures spatial dynamics within and between neighboring land parcels. We use this specification to model the short- and long-distance diffusion and control of an infectious disease in two privately owned and ecologically connected vineyards. Using computational experiments to generate individual and aggregate payoffs, our results suggest that ignoring the within-parcel spatial dynamics in the model may overestimate the social cost of an externality. We find that increased resource value heterogeneity, defined as the difference in grape prices received by the two vineyards, has a detrimental impact on aggregate payoffs. (JEL D62, Q24)