The 2019 Erik Kempe Award has been given to Bård HARSTAD and Torben K. MIDEKSA for their article
Conservation Contracts and Political Regimes
Review of Economic Studies 84, 1708-1734, 2017
Abstract. This article provides a flexible model of resource extraction, such as deforestation, and derives the optimal conservation contract. When property rights are “strong” and districts are in charge of extracting their own resources to get revenues, conservation in one district benefits the others since the reduced supply raises the sales price. A central authority would internalize this positive externality and thus conserve more. When property rights are instead weak and extraction is illegal or costly control, conservation in one district increases the price and thus the profit from illegally depleting the resource in the other districts. The externality from conservation is then negative, and centralization would lead to less conservation. We also derive the optimal conservation contract, and we explain when the principal, who values conservation, benefits from contracting with the districts directly even when contracting with a central authority would have led to more conservation, and vice versa.
The Nomination Committee, composed by Thomas Aronsson (Chair), Carolyn Fischer, Celine Nauges, has awarded this paper for the following motivation:
Bård Harstad and Torben K. Mideksa receive the Erik Kempe Award for a novel and insightful contribution to the literature on forest conservation and conservation contracts. First, they present a tractable model which, albeit seemingly simple in structure, integrates many empirically relevant features as well as gives a number of useful predictions. As such, they have contributed significantly to our understanding of the determinants of tropical deforestation and forest conservation. Furthermore, the workhorse model developed in the paper is broader than the problem at hand and provides, therefore, a useful tool also for studying other natural resources. Second, the paper contributes significantly to our understanding of the effects of conservation contracts and, in particular, how these effects depend on whether forest extraction is centralized or decentralized and on the political institutions in the forest owning country. In other words, Harstad and Mideksa have extended the economic theory of forest conservation and contracts in a useful way, as well as presented insights of clear practical relevance for policy.