The origins and control of forest fires in the Tropics

Clare Balboni, Robin Burgess and Benjamin A. Olken

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Environmental externalities – uncompensated damages imposed on others – lie at the root of climate change, pollution, deforestation and biodiversity loss. Empirical evidence is limited, however, as to how externalities drive private decision making. We study one such behavior, illegal tropical forest fires, using 15 years of daily satellite data covering over 107,000 fires across Indonesia. Weather-induced variation in fire spread risk and variation in who owns surrounding land allow us to identify how far externalities influence the decision to use fire. Relative to when all spread risks are internalized, we find that firms overuse fire when surrounded by unleased government lands where property rights are weak. In contrast, and consistent with the Coase Theorem, firms treat risks to nearby private concessions similarly to risks to their own land. Government sanctions, concentrated on fires spreading to populated areas, also deter fires, consistent with Pigouvian deterrence.

Keywords: externalities; Indonesia; forest fires; wildfires; deforestation; environment; conservation; remote sensing; climate change (search for similar items in EconPapers)
JEL-codes: O13 Q54 Q58 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2025-10-30
New Economics Papers: this item is included in nep-agr, nep-env and nep-sea
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Published in The Review of Economic Studies, 30, October, 2025. ISSN: 0034-6527

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:126393

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