The Political Economy of Deforestation in the Tropics*

TLDR

Tropical deforestation, responsible for nearly one-fifth of global greenhouse gas emissions, threatens the world’s most diverse ecosystems and is largely driven by illegal logging. The study examines how local officials’ incentives influence deforestation in Indonesia using novel satellite data over eight years of institutional change. The authors analyze satellite-derived annual deforestation data spanning eight years of Indonesian institutional change to assess the impact of local officials’ incentives. The study finds that more political jurisdictions drive higher deforestation and lower timber prices, consistent with Cournot competition, that illegal logging and local oil and gas rents substitute in the short run but the effect fades with political turnover, illustrating how officials’ incentives shape deforestation and that standard economic theory explains illegal behavior.

Abstract

Abstract Tropical deforestation accounts for almost one-fifth of greenhouse gas emissions and threatens the world’s most diverse ecosystems. Much of this deforestation 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.