A: 

Yes, using rotating calipers. My prof wrote some stuff on this, it starts on page 19.

Mark
Thanks for the interesting info, but I'm not sure how it can be used to solve the problem. I see how rotating calipers are used to find tangents to merge subset convex hulls into a single convex hull, but that is different from the union of convex hulls - the result can be concave or contain holes for instance. Am I missing something?
James
Oh... I think I misunderstood what you meant by the "union". I assumed you wanted the to merge them into a single convex hull. In that case, I'm not really sure if there are any benefits to be had using hulls vs non-convex polygons. I suggest you look at existing algorithms and see if there are any tweaks you can make to take advantage of the properties of a convex polygon.
Mark
Ok cool, yes I might not be using the 'right' terminology either. Anyway, I've added a proposed solution to my question above - if you have any thoughts on it, let me know. Cheers.
James
A: 

Please let me know if I misunderstood the problem.

I don't see how do you get N^2 time for brute-forcing all convex hulls in the worst case (1). What if almost any 2 points are closer than R - in this case you need at least N^2*logN to just construct the convex hulls, leave alone computing their union.

Also, where does R^2*logR in your estimation comes from?

1 The worst case (as I see it) for a huge N - take a circle of radius R / 2 and randomly place points on its border and just outside it.

Olexiy
Yes, I wasn't very clear with that. O(N^2 + R^2 log R) is in fact not a worst case time but an average case for uniformly distributed points and sufficiently small R.The N^2 was for finding the set of points within radius R of each point. (For each of the N points, the distance to the remaining N-1 points must be checked).The R^2 was assuming a uniform distribution of points, so that the number of points in each convex hull will be proportional to R^2. Calculating convex hull of R^2 points is O(R^2 log R).Finally, taking the union of the N convex hulls I wasn't sure about and left out.
James
+1  A: 

A sweep line algorithm can improve searching for the R-neighbors. Alternatively, you can consider only pairs of points that are in neighboring squares of square grid of width R. Both of these ideas can get rid of the N^2 - of course only if the points are relatively sparse.

I believe that a clever combination of sweeping and convex hull finding cat get rid of the N^2 even if the points are not sparse (as in Olexiy's example), but cannot come up with a concrete algorithm.

Rafał Dowgird
Thanks for the idea, I'm now trying to nut out a solution using a sweep line approach. Will be sure to post back if I come up with a nice solution.
James