Reducing Deforestation and Forest Degradation: Leakage or Synergy?

Policies to reduce deforestation and forest degradation focus on limiting agricultural expansion and nonsustainable (and often illegal) harvesting of forest products. The feedbacks between these two policy instruments are rarely discussed. A simple agricultural household model assesses the impact of a payment for environmental services on both deforestation and harvesting, and the impact of increasing the control on illegal harvesting on deforestation. When land and labor are substitutes, both policies have positive feedbacks and win-win potential. Conversely, when production factors are complements, they have negative feedbacks. A novel result is that the production factors can become substitutes if distance costs are high, making a win-win situation more likely.