DEBT-FOR-NATURE SWAPS AS NONCOOPERATIVE OUTCOMES

Recently, nongovernmental organizations have engaged in debt-for-natur e swaps in an effort to slow the rate of deforestation. The purpose of this paper is to provide analysis of the welfare properties that aris e to self-enforcing swaps, We show that swaps may be self-enforcing in that they can arise as noncooperative equilibria at high harvest and debt levels. Under these conditions, a credit constrained LDC is likel y to reduce harvest levels. Similarly if the NGO views preservation pr ojects as complements, it is likely to provide debt relief. We provide simulations to demonstrate the effects of different parametric values for the utility functions of the LDC and NGO on the noncooperative an d cooperative equilibria.