Do Property Rights Promote Investment but Cause Deforestation? Quasi-Experimental Evidence from Nicaragua
21 Pages Posted: 23 Jul 2013 Last revised: 23 Sep 2014
Date Written: January 1, 2012
Many policymakers argue that property rights decrease deforestation. Some theoretical papers also make this prediction, arguing that property rights decrease discount rates applied to a long-term investment in forestry. However, the effect is theoretically ambiguous. The paper takes a novel instrumental variables approach based on Nicaragua's agrarian reform to test for the effect, using a new data-set — Nicaragua's 2001 agricultural census. It finds that property rights significantly increase deforestation. The model, supported by the data, suggests a likely mechanism for this relationship: property rights increase investment, increasing agricultural productivity and therefore the returns to deforestation.
Keywords: property rights, deforestation, investment
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