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International transfers, price uncertainty and tropical deforestation*

Published online by Cambridge University Press:  31 July 2008

Erwin Bulte  and
Daan Van Soest
Erwin Bulte
Affiliation:
Department of General Economics, Wageningen Agricultural University, PO Box 8130, 6700 EW, Wageningen, The Netherlands
Daan Van Soest
Affiliation:
Department of Economics, University ofGroningen, PO Box 800, 9700 AV, Groningen, The Netherlands
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Abstract

International transfers to developing countries are sometimes advocated on the ground that they contribute to tropical forest conservation. Here we demonstrate that the effectiveness (and attractiveness) of this instrument is reduced if the restrictive assumption of deterministic prices is relaxed. With stochastic prices, the steady-state forest stock in the absence of transfers is greater, implying that the marginal benefit of additional hectares conserved is less. In addition, the ‘wealth effect’ of transfers counteracts the ‘freeing-up effect’, which implies that per unit of subsidy fewer hectares of tropical forest are protected. Both effects reduce the attractiveness of transfers as a policy instrument for Western governments to combat tropical deforestation.

Type
Theory and Applications
Information
Environment and Development Economics , Volume 1 , Issue 3 , July 1996 , pp. 281 - 287
Copyright
Copyright © 1996, Cambridge University Press

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