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Tropical Forests, Tipping Points, and the Social Cost of Deforestation

Listed author(s):
  • Sergio L. Franklin, Jr.
  • Robert S. Pindyck

Recent work has suggested that tropical forest and savanna represent alternative stable states, which are subject to drastic switches at tipping points, in response to changes in rainfall patterns and other drivers. Deforestation cost studies have ignored the likelihood and possible economic impact of a forest-savanna critical transition, therefore underestimating the true social cost of deforestation. We explore the implications of a forest-savanna critical transition and propose an alternative framework for calculating the economic value of a standing tropical forest. Our framework is based on an average incremental cost method, as opposed to currently used marginal cost methods, for the design of optimal land-use policy or payments for ecosystem services. We apply this framework to the calculation of the social cost of deforestation of the Amazon rainforest.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23272.

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Date of creation: Mar 2017
Handle: RePEc:nbr:nberwo:23272
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  1. Strand, Jon, 2017. "Modeling the marginal value of rainforest losses: A dynamic value function approach," Ecological Economics, Elsevier, vol. 131(C), pages 322-329.
  2. Andersen,Lykke E. & Granger,Clive W. J. & Reis,Eustaquio J. & Weinhold,Diana & Wunder,Sven, 2002. "The Dynamics of Deforestation and Economic Growth in the Brazilian Amazon," Cambridge Books, Cambridge University Press, number 9780521811972, December.
  3. Lykke E. Andersen, 2015. "A Cost-benefit Analysis of Deforestation in the Brazilian Amazon," Discussion Papers 0065, Instituto de Pesquisa Econômica Aplicada - IPEA.
  4. Torras, Mariano, 2000. "The total economic value of Amazonian deforestation, 1978-1993," Ecological Economics, Elsevier, vol. 33(2), pages 283-297, May.
  5. Fearnside, Philip M., 1997. "Environmental services as a strategy for sustainable development in rural Amazonia," Ecological Economics, Elsevier, vol. 20(1), pages 53-70, January.
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