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An important aspect of any study involving spatial units (cities, regions, countries, etc) is the potential relationships and interactions between them. For example, when modeling pollution at the regional level it is awkward to analyze each region as independent units. In fact, regions cannot be analyzed as isolated entities since they are spatially interrelated by ecological and economic interactions. Therefore, it is highly probably the existence of environmental externalities: an increase in region i’s pollution will affect the pollution in neighbors regions, but the impact will be lower for more distance regions. Consider Figure 1.1, where region 3 is highly industrialized, whereas region 1, 2, 4 and 5 are residential areas. If region 3 increases its economic activity, then the pollution not only will increase in that region, but also in the neighbor regions. It is also expected that contamination will increase in region 1 and 5 but in lower magnitudes. We might think that environmental externality in R3 causes environmental degradation in other regions, though both spatial-economic interactions (eg transportation of input and output from region 3) and spatial-ecological interactions (eg carbon emissions).