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International transfers, price uncertainty and tropical deforestation

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  • Bulte, Erwin
  • Van Soest, Daan

Abstract

International transfers to developing countries are sometimes advocated on the ground that they contribute to tropical forest conservation. Here we demonstrate that the effectiveness (and attractiveness) of this instrument is reduced if the restrictive assumption of deterministic prices is relaxed. With stochastic prices, the steady-state forest stock in the absence of transfers is greater, implying that the marginal benefit of additional hectares conserved is less. In addition, the ‘wealth effect’ of transfers counteracts the ‘freeing-up effect’, which implies that per unit of subsidy fewer hectares of tropical forest are protected. Both effects reduce the attractiveness of transfers as a policy instrument for Western governments to combat tropical deforestation.

Suggested Citation

  • Bulte, Erwin & Van Soest, Daan, 1996. "International transfers, price uncertainty and tropical deforestation," Environment and Development Economics, Cambridge University Press, vol. 1(03), pages 281-287, July.
  • Handle: RePEc:cup:endeec:v:1:y:1996:i:03:p:281-287_00
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