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Estimating spatial interactions in forest clearing

Juan A. Robalino, Alexander Pfaff

[2004]

Abstract: We estimate the effects of neighbors’ deforestation actions on individuals’ deforestation decisions in Costa Rica. We find evidence that these spatial interactions are positive and significant. To address simultaneity and spatially correlated unobservable factors, we instrument for neighboring deforestation using neighboring land parcel characteristics. Our results are also robust to a set of variations on the specification. These findings are important for projecting forest levels and spatial patterns. Under the presence of interactions, policies that promote agricultural development or forest conservation in a specific forest area will also affect deforestation rates in surrounding forest areas. Such externalities clearly affect the optimal spatial policy. Also, multiple equilibria might arise, which could justify intervention to reach Pareto dominant deforestation outcomes.