The Political Economy of Deforestation in the Tropics

Tropical deforestation accounts for almost one-�fth of greenhouse gas emissions worldwide and threatens the world�s most diverse ecosystems. The prevalence of illegal forest extraction in the tropics suggests that understanding the incentives of local bureaucrats and politicians who enforce forest policy may be critical to combating tropical deforestation. We �nd support for this thesis using a novel satellite-based dataset that tracks annual changes in forest cover across eight years of institutional change in post-Soeharto Indonesia. Increases in the numbers of political jurisdictions are associated with increased deforestation and with lower prices in local wood markets, consistent with a model of Cournot competition between jurisdictions. We also show that illegal logging and rents from unevenly distributed oil and gas revenues are short run substitutes, but this e�ect disappears over time as political turnover occurs. The results illustrate how incentives faced by local government o� cials a�ect deforestation, and provide an example of how standard economic theories can explain illegal behavior.