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The Market for Conservation and Other Hostages

Joint Bank-Fund Brown-Bag Research Seminars on Environment and Energy:

Bård Harstad
Northwestern University

The Market for Conservation and Other Hostages

Wednesday, November 9, 2011, 12.30-2 pm
Venue: MC6-598

A conservation good, such as the rainforest, is a hostage: it is owned by S who may prefer to consume it, but B receives a larger value from continued conservation. A range of prices would make trade mutually beneficial. Why doesn’t B then purchase the forest from S? If this were an equilibrium, S would never cut the forest, anticipating a higher price at the next stage. But anticipating this, B prefers not to buy it. I explore mixed-strategy equilibria where only part of the forest is cut. If conservation is more valuable, less cutting occurs; but with several interested buyers, more cutting occurs. If S sets the price and players are patient, the forest is always cut. A rental market has similar properties. A rental market dominates a sale market if conservation value is low, consumption value high, and remote protection costly. My model can explain why optimal conservation often does not occur, and why conservation abroad is rented, while domestic conservation is bought.
Bård Harstad holds the Max McGraw Chair in Management and Environment in the Kellogg School of Management at Northwestern University. His academic interests include political economics, public economics and organizational economics. In particular, his research focuses on international institutions, negotiations and agreements; currently he is analyzing international climate change agreements. His research has been published in journals which include the American Political Science Review, American Economic Review, and Quarterly Journal of Economics. Harstad holds a PhD in Economics from Stockholm University, and a Cand Oecon degree from the University of Oslo, in his native Norway. For shorter periods he has also worked in the World Bank, the Norwegian Institute for International Affairs, and as a freelance journalist.

For further information on the presentation, contact Jon Strand at:, 202-458-5122

The Joint Bank-Fund Brown-Bag Research Seminars on Environment and Energy is a joint initiative between the Development Research Group, Environment and Energy Team (DECEE), World Bank, and the Fiscal Affairs Department, IMF. Organizers of the series are Jon Strand (DECEE), and Ruud de Mooij and Ian Parry (FAD/IMF). The seminars are held at lunch time, normally once every two weeks, alternately in the Bank and Fund. Aims of the seminars are to raise attention to, and interest in, environment, energy and natural resources issues in both institutions; to promote the interaction between the two institutions in these fields; and to improve the institutions' common work on policy.

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