Assessing the Relationship between Government Policy and Deforestation

The effects of public policies on deforestation are assessed in a general equilibrium framework. A forest can be left in its natural state to provide a consumption benefit, such as biodiversity or carbon absorption. In its natural state it is subject to free access, however. Alternatively, it can be converted to a market input needed to produce a valuable final product. The utility of consumers depends on the amount of the forest left standing, on consumption of the forest-using commodity, and on consumption of a numeraire that is produced from non-forest inputs only. Final commodities are traded with the outside world at constant prices. The model is used to evaluate claims in the literature regarding the effects of government policies on deforestation in developing countries. The polices examined include transportation improvements, taxes and royalties on timber harvests, controls on log exports, a variety of agricultural policies, tax incentives to promote domestic processing industries, and employment opportunity enhancement.