Research Publication

Abstract:

Some portions of land in the Brazilian Amazon are forested, and other portions are used in agricultural activities, principally cattle-ranching. Deforestation emits carbon, and reforestation captures it. Both are consequential for the global climate. The social and private productivities for the alternative land uses vary across locations within the Amazon region. In this research, we build and analyze a spatial/dynamic model of socially efficient land allocation to establish a benchmark for ad-hoc policies. We incorporate the stochastic evolution of cattle prices into our analysis, and we explore the consequences of ambiguity in the location-specific productivities on the socially efficient policy. Finally, we assess the consequences of imposing alternative social costs of carbon emissions on the spatial/dynamic allocation of land use. Our results indicate that even modest transfers per ton of net CO2 would incentivize Brazil to choose policies that produce substantial capture of greenhouse gases in the next 30 years. Our analysis points to the management of tropical forests as an important contributor to climate change mitigation in the near future.

We thank Pengyu Chen, Bin Cheng, Patricio Hernandez, João Pedro Vieira, Daniel (Samuel) Zhao for their expert research assistance and to Joanna Harris and Diana Petrova for their helpful comments.

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