Tropical Deforestation: Markets and Market Failures

Activities to curb deforestation yield private goods, country-specific public goods, and global public goods. Markets can operate for the private goods, while nations are motivated to strike bargains with one another over country-specific public goods. Suboptimality stems from the global public goods and the positive externalities associated with preservation activities. This suboptimality can be attenuated if the developed countries establish property rights to genetic material gathered from the rain forests. Since much of the global public benefits is derived by the developed countries, they are in a weak bargaining position with respect to the shrinking rain forests.