Environmental effects of economywide policies case studies of Costa Rica and Sri Lanka

University dissertation from Stockholm : Economic Research Institute, Stockholm School of Economics (EFI)

Abstract: Traditional approaches to modeling environmental resources withinsecure or illdefined property rights are based on partial equilibrium models. This dissertation takes the view that since insecure tenure arrangements may be difficult to remedy, effects of national and sectoral policies should be analyzed in a general equilibrium framework in order to take unintended side effects on the the utilization of environmental resources into account. Specifically, two case studies on deforestation in Costa Rica and land degradation in Sri Lanka are developed. The main conclusions of this exercise is that although partial models may be useful in analyzing policies aimed at the environmental resource in question or reforms in the property rights system, economywide policies and sectoral policies aimed at other sectors may have large effects on environmental resource utilization. When the environmental quality is a concern, a general equilibrium framework shoul be used.In the case of Costa Rica, the results indicate that policies such as minimum wage legislation and capital taxation have significant effects on deforestation. The deforestation effects should be taken into account in policy making, and mesaures to mitigate deforestation should accompany these policies. Similar results hold for the case study of land degradation in Sri Lanka.