Spatial Discounting versus Transport: A Trade-Off Changing across Distance

Human preferences are found to be characterized by a neglect of impacts occuring in the future or at a distance. Concerning the spatial dimension, diffusion of pollution may justify this reduced concern. There are many cases, however, where spatial discounting is not justified. Such cases increase in importance with eased world trade, when consumers become responsible for impact increasingly located at a distance. In this paper we analyze how consumers ́ spatial discounting influences the trade volume and the location of production. The analysis is both theoretical, introducing spatial discounting into the Dixit-Stiglitz model of imperfect competition, and empirical, relating revealed spatial discounting to transport costs. Spatial discounting is found to increase world transport volumes by increasing trade volumes and not unambiguously trade distances.