Controlling Tropical Deforestation: An Analysis of Alternative Policies

Abstract

After discussing ownership issues related to tropical forests, the author develops a simple general equilibrium model to represent - at least in a stylized way - the salient aspects of the deforestation process. He uses the model to generate first- and second-best policy options for controlling deforestation and, later, to assess the environmental consequences of government policies often cited in the literature on deforestation. Property rights, though important for understanding the process of tropical deforestation, do not necessarily point to a simple or straightfoward fix for environmental problems, particularly in developing countries. The sheer size, communal nature of service flows, and pervasiveness of individual access to tropical forests make monitoring and enforcement costly in some situations and unimaginable in others. Redefining nominal rights in ways that appear to correct inefficiencies may yield gains in some cases, but an approach to environmental protection that leans heavily on this prescription seems aimed more at symptoms than at causes, says the author. Moreover, policy approaches based on the use of Pigovian taxes or marketable permit schemes may yield efficiency gains in some cases, but such approaches generally involve the same monitoring and enforcement problems that prevent the market from solving allocation problems. Simple, direct solutions to deforestation and other environmental problems are unavailable, but an ability to understand the environmental and welfare consequences of policies adopted for other reasons is useful - if only to help policymakers avoid mistakes that would otherwise go unrecognized. The model the author develops for this purpose is highly stylized and intended primarily to provide a systematic way of thinking about the environmental and welfare effects of government policy - for example, by considering patterns of substitution among inputs and outputs, in cases where an environmental resource to which people have free access is exploited. If the use of first-best policies is infeasible - whether because of monitoring costs, transboundary effects, or other reasons - then it becomes important to have detailed knowledge of patterns of substitution and complementarity among ordinary inputs and environmental resources, and information on the use of various environmental resources in the production of specific goods and services. Knowledge of such factors can permit policymakers to pursue policy goals in situations where first-best instruments are unavailable.

Keywords: Environmental Economics & Policies, Forestry, Markets and Market Access, Economic Theory & Research, Public Sector Economics