DEFORESTATION AND FOREST LAND USE: THEORY, EVIDENCE, AND POLICY IMPLICATIONS

Abstract

The topic of deforestation is seldom examined from the perspective of prices and responses to resource scarcity. This omission creates important errors in policy. Resource scarcity induces investments in both commercial and subsistence uses of the forest once prices overcome the costs of establishing property rights, forest management, and the returns from alternative agricultural uses of the land. Therefore deforestation will induce price increases and investments in forestry well before deforestation attains its physical limit. These prices and costs will alter the boundaries among several important classes of forest land: sustainable private forestry, the forested commons, unsustainable open-access forests, and unused residual forest. The greatest impact on the world's forests will come from refocusing the policy dialogue on the cost factors that determine these boundaries, including agricultural support policies, local concentrations of nonmarket environmental resources, and policy failures that distort incentives to invest in forestry. In locations where reforestation induces large price changes, policymakers must remain attuned to the likelihood that deforestation-induced changes in the prices of forest products and forest policies may cause significant shifts in the activities of the poorest people.