Moral Hazard, Social Well-Being and Tropical Deforestation

Abstract

The aim of this paper is to explore the impact of tropical deforestation due to logging activities on social well-being when there is moral hazard in the logging industry. I set up a multiperiod principal-agent model. I show that when the government cannot observe the deforestation rate realized by the logging firm, an increase in tropical deforestation decreases social well-being.