Property rights and deforestation in the Brazilian Amazon

This paper focuses on the impact of property rights insecurity on deforestation in the Brazilian Legal Amazon. Deforestation is considered as a risk management strategy: property rights insecurity reduces the present value of forests and fosters forest conversion into agricultural and pasture lands. Moreover, deforestation is the consequence of strategic interactions between landowners and squatters. Landowners clear the forest preventively in order to assert the productive use of land and to reduce the expropriation risk. Squatters invade land plots, clear the forest and may afterwards gain official recognition with formal property titles. A particular attention is paid to the measure of land property rights insecurity in the Brazilian context. It is assumed that property rights insecurity has a multidimensional character taken into account by the number of homicides related to land conflicts and expropriation procedures. Principal component analysis allows synthesising such information. An econometric model of deforestation is estimated on a panel dataset on the 1988-2000 period and the nine states of the Brazilian Legal Amazon. The hypothesis that insecure land property rights contribute to higher rates of deforestation is not rejected when the simultaneity bias between insecure property rights and deforestation is addressed. This result questions the modality of the Brazilian land reform that considers forested areas as unproductive and thus open for expropriation procedures.