Optimal forest conservation: Competitiveness versus green image effects

This article provides a theoretical framework to study the behavioral and w elfare effects of forest conservation, which leads to a binding harvesting constraint for landowners. The economy is modeled as a three-stage game by the interaction of the government's conservation policy, with consequent ad justments in the domestic timber market, and in output determination in a C ournot rivalry with the foreign forest industry. More specifically, we stud y how the forest industry's competitiveness constrains forest conservation and whether the " green image " demand resulting from forest conservation c ompensates the loss in competitiveness. It is shown that although the green image effect may locally be strong enough to even increase the profits of the domestic forest industry, at the social ly optimal forest conservation level it never dominates the competitiveness effect. Hence, there is a trad e-off between forest conservation and competitiveness. These findings are r obust to the issue of whether timber markets are perfectly or imperfectly c ompetitive.