Contagion externalities and the conversion of low-intensity land uses on the urban fringe

The last decade has been characterized by a growing concern over the conversion of important farmlands and unique natural environments to developed uses. Preservation of agricultural, recreation, and/or open space uses of land around expanding urban areas faces unique problems. This paper examines the impact of spatial considerations on preservation policy. In particular, the allocative significance of contagion externalities is explored for both short-run and long-run policy formation, and empirical evidence for two U.S. cities is presented. It is concluded that failure to account for the external effects generated from urban development will lead to inefficient preservation strategies based on fiscal incentives and misspecified preservation goals.