Deforestation and Government Conservation Policies

Abstract

In this paper we investigate land conversion in the presence of voluntary and mandatory habitat conservation policies. Conversion decisions are taken under uncertainty about the value of environmental services by a multitude of landholders competing on the market for agricultural products. We show that land conversion can be delayed by compensating landholders providing environmental services and by limiting the individual extent of developable land. In contrast, we find that setting a ceiling on aggregate land conversion may lead to runs which rapidly exhaust the targeted amount of land. Finally, studying conversion dynamics under different policy scenarios, we show that uncertainty, even if inducing conversion postponement in the short-run, increases the average rate of deforestation and reduces the expected time for total conversion in the long run.

Keywords: Optimal stopping, Deforestation, Payments for environmental services, Natural resources management

JEL Classification: C61, D81, Q24, Q58