TY  - JOUR
AU  - Harstad,Bård
TI  - The Market for Conservation and Other Hostages
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17409
PY  - 2011
Y2  - September 2011
UR  - http://www.nber.org/papers/w17409
L1  - http://www.nber.org/papers/w17409.pdf
N1  - Author contact info:
Bård Harstad
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-5166
Fax: 847/467-1220
E-Mail: harstad@kellogg.northwestern.edu
AB  - A conservation good, such as the rainforest, is a hostage: it is possessed 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. So, why doesn't B purchase conservation, or the forest, from S?

If this were an equilibrium, S would never consume, anticipating a higher price at the next stage. Anticipating this, B prefers to deviate and not pay. The Markov-perfect equilibria are in mixed strategies, implying that the good is consumed (or the forest is cut) at a positive rate. If conservation is more valuable, it is less likely to occur. If there are several interested buyers, cutting increases. If S sets the price and players are patient, the forest disappears with probability one.

A rental market has similar properties. By comparison, a rental market dominates a sale market if the value of conservation is low, the consumption value high, and if remote protection is costly. Thus, the theory can explain why optimal conservation does not always occur and why conservation abroad is rented, while domestic conservation is bought.
ER  -