Not the environment or economics, but...

...what kind of incentives are created by a situation like this?

It's an abstract for a forthcoming paper by Brian Kalt, who claims that there is a fifty square mile area in Idaho in which it is not illegal to commit a felony. Since the paper isn't written yet, I can't argue the author's point; if it's true, would-be criminals have incentive to commit felonies instead of misdemeanors to avoid punishment.

Now that's what I call skewed incentives.