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Price incentives and unmonitored deforestation: Evidence from Indonesian palm oil mills

Author

Listed:
  • Valentin GUYE

    (INRAE et Mercator Research Institute for Global Commons and Climate Change Berlin (MCC))

  • Sebastian KRAUS

    (MCC)

Abstract

We create a novel, spatially explicit microeconomic panel of Indonesian palm oil mills, to provide the first estimates of deforestation price elasticities based on observations of the actual prices paid at mill gates. To identify the price elasticity, we spatially model how deforestation in upstream plantations is exposed to downstream, conditionally exogenous, shocks on mill-gate prices. We provide the first evidence that deforestation for smallholder plantations, and illegal deforestation, are price elastic. This implies that a price instrument can disincentivize deforestation where it is most difficult to monitor, and contain leakages from conservation regulations.

Suggested Citation

  • Valentin GUYE & Sebastian KRAUS, 2021. "Price incentives and unmonitored deforestation: Evidence from Indonesian palm oil mills," Working Papers 2021.11, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2021.11
    as

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    File URL: http://faere.fr/pub/WorkingPapers/Guye_Kraus_FAERE_WP2021.11.pdf
    File Function: First version, 2021
    Download Restriction: no
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    More about this item

    Keywords

    Deforestation; price elasticity; oil palm; Indonesia;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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