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The market for conservation and other hostages

Bard Harstad

Journal of Economic Theory, 2016, vol. 166, issue C, 124-151

Abstract: A “conservation good” (such as a tropical forest) is owned by a seller who is tempted to consume (or cut), but a buyer benefits more from conservation. The seller prefers to conserve if the buyer is expected to buy, but the buyer is unwilling to pay as long as the seller conserves. This contradiction implies that the market for conservation cannot be efficient and conservation is likely to fail. A leasing market is inefficient for similar reasons and dominates the sales market if and only if the consumption value and the buyer's protection cost are large. The theory thus explains why optimal conservation often fails and why conservation abroad is leased, while domestic conservation is bought.

Keywords: Conservation; Dynamic games; Sales v rental markets; Deforestation; Market failure; Time inconsistency (search for similar items in EconPapers)
JEL-codes: D78 D62 H87 Q30 Q23 (search for similar items in EconPapers)
Date: 2016
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Working Paper: The Market for Conservation and Other Hostages (2013) Downloads
Working Paper: The Market for Conservation and Other Hostages (2011) Downloads
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