Mr. Keynes and the environment: Tropical deforestation and the concept of user cost

Abstract

Keynes’ General Theory has been a major source of inspiration in almost all areas of economics. However, it has been largely ignored in the environmental economics debate, characterized by a complete dominance of orthodox, neoclassical models. This is the case of tropical deforestation: the existing models that analyze the economic motivations that fuel the land clearing process use unrealistic assumptions and optimal control models that provide misleading results and incorrect policy recommendations. The objective of this paper is to present an alternative perspective for the problem, based on Keynes’ definition of income and user cost. A simple theoretical model is used to describe the importance of land speculation in the capital component, thus affecting the land clearing decision. Economic policies have an important influence in this process, and consistent public policies aiming at controlling deforestation should consider these effects as well as the conventional issues that are addressed by environmental regulators.