DEFORESTATION AND ASSET ACCUMULATION AMONG SMALL SCALE FARMERS

This paper explores deforestation and asset accumulation among small scale farmers in tropical forests. In a two-state variable control model, forest clearing is an investment in land holdings and the productivity of forest clearing is a function of non-land assets like chainsaws. Comparative static analyses demonstrate that: (1) the addition of non-land asset accumulation options may or may not change the impacts of policy measures on deforestation, depending on labor market conditions; and (2) discount rate decreases (through for example credit subsidies) offer the prospect of a win-win scenario-- forest protection and asset accumulation-- only when an active labor market exits.