1. Economic perspectives Forest Policy Options

2. Outline  A simple model of deforestation: Combining Von Th ü nen and Forest Transition theories  REDD at domestic level: Adverse selection (hidden information)  REDD at international level: Links with world commodity markets; “leakage”  Conclusions/recommendations: How to proceed?

3. A simple model of deforestation Rent ($/ha) Distance to central market Intensive agriculture Extensive agric. Production forest Old-growth forest Rent in intensive agriculture Rent in extensive agriculture Rent in forestry

4. Forest Transition Triggers: roads for economic or geo-political reasons. Agricultural expansion. Reinforcing loops. Stabilization: downward pressure on agricultural rents (e.g. labour market), forest scarcity. Turnaround: Economic development path; Forest scarcity path Time Forest cover

5. REDD Domestic Domestic challenge: Max deforestation reduction (or GHG reduction) given fixed REDD budget (and given additional constraints, e.g. economic development, poverty alleviation, biodiversity, etc., etc.) => 1 instrument - x objectives??

6. REDD Domestic Total land (ha) XNXN R Cleared always XPXP P Cleared never Payment impact $ 0

7. REDD Domestic  Adverse selection (hidden information) Participation highest when opportunity cost lowest (Pfaff and Robalino (2009): PES Costa Rica Remedies (Ferraro, 2008):  Gather costly-to-fake signals  Use ‘screening’ contracts  Use procurement auctions

8. REDD International  Funding: who, how, how much?  Payments: whom, how, how much? Interactions (feedbacks, spillovers) with commodity markets:  Welfare effects to different agents  ‘Leakage’

9. Conclusion/recommendations  Domestic: Adverse selection  Country case study teams could address the issue of “mechanism design”  International: CGE analysis  Dynamic GTAP:  Land competition agriculture/forestry (standard, fixed land endowment)  Land-augmenting “deforestation” investments (new, Gouel & Hertel, 2006)