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The effects of uncertain forest conservation benefits on long-run deforestation in the Brazilian Amazon

Published online by Cambridge University Press:  17 May 2018

Luca Di Corato Open the ORCID record for Luca Di Corato [Opens in a new window] ,
Michele Moretto  and
Sergio Vergalli Open the ORCID record for Sergio Vergalli [Opens in a new window]
Luca Di Corato
Affiliation:
Dipartimento Jonico, Università degli Studi di Bari, Taranto, Italy
Michele Moretto
Affiliation:
Department of Economics, University of Padova, Centro Studi Levi-Cases, Padova, Italy
Sergio Vergalli*
Affiliation:
Department of Economics and Management, Università degli Studi di Brescia, Brescia, Italy
*
*Corresponding author. E-mail: [email protected]
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Abstract

Deforestation results from the trade-off between benefits from forest conservation and economic profits associated with land development. However, as net gains are often uncertain, irreversible land development may later be regretted. To better inform conservation policies, we use a real options framework to model irreversible forest conversion under uncertain conservation benefits and determine the associated optimal long-run average rate of deforestation. We then analyze the impact of the demand for agricultural products on the rate of deforestation in the Brazilian Amazon. In a scenario analysis for the nine states of the Brazilian Amazon, we calculate: (i) the expected time for exhaustion of the current forest stock; and (ii) the potential forest coverage for the next 20, 100 and 200 years. Our results suggest that if forest benefits grow over time at a sufficiently high speed, they may significantly slow down deforestation. In contrast, the higher their volatility, the faster deforestation proceeds.

Keywords

DeforestationLong-runNatural Resource ManagementOptimal Stopping
Type
Research Article
Information
Environment and Development Economics , Volume 23 , Issue 4 , August 2018 , pp. 413 - 433
Copyright
Copyright © Cambridge University Press 2018 

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