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The Market for Conservation and Other Hostages

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  • Bård Harstad

Abstract

A conservation good, such as the rainforest, is a hostage: it is possessed by S who may prefer to consume it, but B receives a larger value from continued conservation. A range of prices would make trade mutually beneficial. So, why doesn't B purchase conservation, or the forest, from S? If this were an equilibrium, S would never consume, anticipating a higher price at the next stage. Anticipating this, B prefers to deviate and not pay. The Markov-perfect equilibria are in mixed strategies, implying that the good is consumed (or the forest is cut) at a positive rate. If conservation is more valuable, it is less likely to occur. If there are several interested buyers, cutting increases. If S sets the price and players are patient, the forest disappears with probability one. A rental market has similar properties. By comparison, a rental market dominates a sale market if the value of conservation is low, the consumption value high, and if remote protection is costly. Thus, the theory can explain why optimal conservation does not always occur and why conservation abroad is rented, while domestic conservation is bought.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17409.

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Date of creation: Sep 2011
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Publication status: published as Bård Harstad, 2016. "The market for conservation and other hostages," Journal of Economic Theory, .
Handle: RePEc:nbr:nberwo:17409
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Find related papers by JEL classification:
  • D62 - Microeconomics - - Welfare Economics - - - Externalities
  • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
  • F5 - International Economics - - International Relations, National Security, and International Political Economy
  • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
  • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
  • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
  • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
  • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
  • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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Cited by:

  1. Bård Harstad, 2011. "The Market for Conservation and Other Hostages," NBER Working Papers 17409, National Bureau of Economic Research, Inc.
  2. Georgy Egorov & Bård Harstad, 2015. "Private Politics and Public Regulation," Discussion Papers 1580, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Frederick van der Ploeg, 2013. "Cumulative Carbon Emissions and the Green Paradox," OxCarre Working Papers 110, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  4. Suzi Kerr, 2012. "The Economics of International Policy Agreements to Reduce Emissions from Deforestation and Degradation," Working Papers 12_12, Motu Economic and Public Policy Research.
  5. May, Peter H. & Soares-Filho, Britaldo Silveira & Strand, Jon, 2013. "How much is the Amazon worth ? the state of knowledge concerning the value of preserving amazon rainforests," Policy Research Working Paper Series 6668, The World Bank.

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