THE POLITICAL ECONOMY OF DEFORESTATION IN THE TROPICS

Tropical deforestation accounts for almost one-\u85fth of greenhouse gas emissions and threatens the worlds 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 o ¢ cialsincentives a¤ect 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 e¤ect disappears over time with political turnover. The results illustrate how local o ¢ cialsincentives a¤ect deforestation, and show how standard economic theories can explain illegal behavior