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Staff Publications

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    'Staff publications' is the digital repository of Wageningen University & Research

    'Staff publications' contains references to publications authored by Wageningen University staff from 1976 onward.

    Publications authored by the staff of the Research Institutes are available from 1995 onwards.

    Full text documents are added when available. The database is updated daily and currently holds about 240,000 items, of which 72,000 in open access.

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Record number 389626
Title Land speculation and interest rate subsidies as a cause of deforestation: The role of cattle ranching in Costa Rica
Author(s) Roebeling, P.C.; Hendrix, E.M.T.
Source Land Use Policy 27 (2010)2. - ISSN 0264-8377 - p. 489 - 496.
DOI https://doi.org/10.1016/j.landusepol.2009.07.002
Department(s) Development Economics
Operations Research and Logistics
WASS
Publication type Refereed Article in a scientific journal
Publication year 2010
Keyword(s) investment-uncertainty relationship - brazilian amazonia - adjustment costs - eastern amazonia - firm - economics - irreversibility - conservation - aggregate - lowlands
Abstract Land speculation by cattle ranchers is considered a principal cause of deforestation in Latin America, in particular in combination with (previously) widely provided interest rate subsidies. Proof for the hypothesis that land speculation leads to inflated rates of investment in land is, however, relatively limited and invariably related to the question of whether land prices tend to rise over time. Based on the Neoclassical investment theory with adjustment costs we develop a stochastic cattle ranching model in which land prices are modelled as geometric Brownian motion, to evaluate the effect of expected fluctuations in land prices on land investment decisions by cattle ranchers in Latin America. For a case study in the Atlantic Zone of Costa Rica, results show that the expected rate of investment is almost 35% underestimated in case land prices are assumed constant instead of fluctuating according to the standard deviation, while abolition of interest rate subsidies leads to an almost 15% decrease in the expected rate of investment. Consequently, it is shown that variability in land prices alone is a sufficient condition for land speculation, inflated rates of investment in land, larger farm sizes and, thus, higher rates of deforestation in agrarian frontier areas, while this process is further promoted by subsidized livestock credit or any other form of agricultural subsidy that increases the marginal production value of land
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