The Market for Conservation and Other Hostages

47 Pages Posted: 21 Sep 2011 Last revised: 31 May 2023

See all articles by Bård Harstad

Bård Harstad

Stanford Graduate School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: September 2011

Abstract

A conservation good, such as the rainforest, is a hostage: it is possessed by S who may prefer to consume it, but B receives a larger value from continued conservation. A range of prices would make trade mutually beneficial. So, why doesn't B purchase conservation, or the forest, from S?If this were an equilibrium, S would never consume, anticipating a higher price at the next stage. Anticipating this, B prefers to deviate and not pay. The Markov-perfect equilibria are in mixed strategies, implying that the good is consumed (or the forest is cut) at a positive rate. If conservation is more valuable, it is less likely to occur. If there are several interested buyers, cutting increases. If S sets the price and players are patient, the forest disappears with probability one.A rental market has similar properties. By comparison, a rental market dominates a sale market if the value of conservation is low, the consumption value high, and if remote protection is costly. Thus, the theory can explain why optimal conservation does not always occur and why conservation abroad is rented, while domestic conservation is bought.

Suggested Citation

Harstad, Bard, The Market for Conservation and Other Hostages (September 2011). NBER Working Paper No. w17409, Available at SSRN: https://ssrn.com/abstract=1931180

Bard Harstad (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
94305
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
23
Abstract Views
465
PlumX Metrics