There is Trouble with the Trees: How to Avoid Trade-Induced Deforestation?

Alan Leal and Maurício Bugarin
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Maurício Bugarin: Full Professor of Economics at University of Brasília

No 5-2024, TD NEREUS from Núcleo de Economia Regional e Urbana da Universidade de São Paulo (NEREUS)

Abstract: Trade and environment are intertwined subjects. The literature on the impact of trade opening on environmental outcomes are vast. Lacking however is the literature in how trade can be used politically to induce better environmental outcomes. To model this properly, we develop a game theoretic model in which two countries engage in trade and choose their respective levels of deforestation and trade tariffs. We consider the scenarios of market and central equilibria and derive some useful insights into their relationship of these two variables. As an extension, we also propose different model specifications and develop a numeric generalization of the model, which allows testing our models prediction for several countries. As a result, we find that there is an incentive for free-riding from the countries less concerned with deforestation on the countries that suffer the most disutility of its own deforestation.

Keywords: trade; deforestation; game theory (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-08-02
New Economics Papers: this item is included in nep-env, nep-gth and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:ris:nereus:2024_005

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