ECONOMIC-PARAMETERS OF DEFORESTATION

In theory, economic instruments should overcome the market failures th at lead to excessive deforestation. Secure property rights could be es tablished and enforced to eliminate the open access problem. In practi ce, the size of the welfare loss that arises from market failures in t he forest sector in the absence of such first-best policies is determi ned by the incentives, prices, and policies faced by those who make de cisions about land use. In many cases, the effects of policies on defo restation are not straightforward. For example, there ave conflicting views on whether an increase in the price of logs leads to an increase or a decrease in deforestation. The effect of a change in the price o f logs has particular relevance for the controversial debate about the effect on deforestation of a ban on log exports or other trade restri ctions that lower the domestic price of logs. This article provides an analytical framework for determining the effects of changes in econom ic policies and parameters on deforestation. It models dynamic, profit -maximizing land-use choices and obtains unambiguous comparative stati c results by distinguishing between unmanaged and managed forests. The results suggest that measures to reduce the producer price of logs co uld be a second-best policy to reduce the pressures on the frontiers o f unmanaged forests and to protect biodiversity.