The Dynamics of Deforestation and Economic Growth in the Brazilian Amazon

By Lykke E. Andersen; Clive W. J. Granger et al. | Go to book overview
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8
The costs and benefits of deforestation

In terms of world systems, the rainforests are basically irrelevant. World weather is governed by the oceans that great system of ocean atmospherics.

(Philip Stott, cited in The New York Post 2000)

Chapter 6 of this book showed that there is a trade-off between economic growth and forest conservation, and that this trade-off can be affected by economic policy. The benefit side of deforestation shows how much extra regional GDP is obtained by converting 1 extra hectare of forest into agricultural land. However, there are also some significant and potentially large costs associated with forest clearing. Most of these costs are external to the farmer, in that they are not costs that he must bear himself out of his own pocket. Thus, they are unlikely to be taken into account when he makes the clearing decision. Multiplied over many farmers and land clearing decisions, the presence of these external costs will cause forest conversion to proceed more rapidly than is globally optimal. However, the existence of externalities does not automatically imply that forest clearing exceeds the socially optimal rate. The basic logic can be applied to make the opposite argument as well; imperfect capital markets, the lack of local governments to provide necessary public goods, and other market imperfections may lead to underutilization of the forest from a social cost-benefit perspective.


The global costs and benefits of Amazon deforestation

It is the purpose of this chapter1 to provide an estimate of the global costs of Amazon deforestation and compare these with the estimated benefits. The costs are divided into private costs, local public costs, and global public costs, because it is important to understand what kind of services the forest brings and who benefits from them. Only with that understanding can we design policies to conserve forest services in an

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1
This chapter is based on Andersen (1997, 1998, 1999).

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