Realistic REDD: Improving the Forest Impacts of Domestic Policies in Different Settings

Both theory and evidence regarding forest-relevant decisions by various agents suggest that there are significant constraints on the effectiveness of domestic policies for REDD (i.e., in facilitating a reduction in emissions from deforestation and forest degradation). Economic theory and empirical research identify many factors that affect the incentives for forest clearing, thereby limiting the impact of policies intended to alter any one factor. We summarize three theoretical frameworks that could be employed to gain insights into how to improve REDD policy design. Economists commonly use these frameworks to model decisions in many settings that are relevant for forests and REDD: (1) producer profit maximization given market integration, focusing on the spatial distributions of competing land uses; (2) rural household optimization given incomplete markets and household heterogeneity, to explain uses of land and forest; and (3) public optimization given production and corruption responses by private firms, which we illustrate with harvesting concessions and which is affected by decentralization. We also review empirical evidence concerning the impacts of forest conservation, forest-relevant development, and decentralization within the settings described by these models. Both the theory and the evidence suggest that REDD outcomes can be improved by designing policy to match its setting--the relevant local agents and institutions. (JEL: Q15, Q24, Q28, Q38, Q54, Q56, Q57, O13, O21, R12, R14, H4) Copyright 2013, Oxford University Press.