THE POLITICAL ECONOMY of DEFORESTATION in the TROPICS* Robin Burgess Matthew Hansen Benjamin A
THE POLITICAL ECONOMY OF DEFORESTATION IN THE TROPICS* Robin Burgess Matthew Hansen Benjamin A. Olken Peter Potapov Stefanie Sieber Tropical deforestation accounts for almost one-fifth of greenhouse gas emis- sions and threatens the world’s most diverse ecosystems. Much of this defor- estation is driven by illegal logging. We use novel satellite data that tracks annual deforestation across eight years of Indonesian institutional change to examine how local officials’ incentives affect deforestation. Increases in the number of political jurisdictions lead to increased deforestation and lower timber prices, consistent with Cournot competition between jurisdictions. Illegal logging and local oil and gas rents are short-run substitutes, but this effect disappears over time with political turnover. The results illustrate how local officials’ incentives affect deforestation and show how standard economic theories can explain illegal behavior. JEL Codes: D73, L73. I. Introduction Viewed from space two great bands of green—the equatorial, tropical forests and northern, temperate and boreal forests— encircle the globe. Deforestation has been extremely rapid in tropical forests relative to their northern counterparts. One reason for this is the greater prevalence of illegal extraction, which often negates or overturns attempts to sustain forest *We thank Pranab Bardhan, Tim Besley, Mario Boccucci, Bronwen Burgess, Ahmad Dermawan, Dave Donaldson, Claudio Ferraz, Frederico Finan, Amy Finkelstein, Andrew Foster, Jason Garred, Michael Greenstone, Elhanan Helpman, Seema Jayachandran, Lawrence Katz, Ted Miguel, Mushfiq Mobarak, Ameet Morjaria, Sriniketh Nagavarapu, Krystof Obidzinski, Subhrendu Pattanayak, Torsten Persson, Fred Stolle, Nico Voigtlaender, Pierre Yared, numerous seminar participants, and five anonymous referees for helpful comments and suggestions. We thank Angela Kilby, Zejd Muhammad, Prani Sastiono, Mahvish Shaukat, and Nivedhitha Subramanian for excellent research assistance.
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