Incentives,regulations, and sustainable land use in Costa Rica

Deforestation in Costa Rica has proceeded at a rapid pace. Of the remaining 2,700 km² of virgin forests on privately-owned land, over 300 km² are being deforested each year. Pressure on National Parks, which cover about 27 percent of Costa Rica is likely to increase in the future. Preliminary information indicates that, contrary to our expectations, most of the deforestation at present is not being done by squatters, but driven by profit and asset maximization motives of the timber industry, banana companies, and large cattle ranchers. Setting aside 27 percent of the country's land as parks and reserves was a major policy decision. Aside from the removal of some perverse incentives operating inside park areas, the main issue there is one of sound management, including protection from intruders, strengthening enforcement, and controlled tourism. On the remaining primary and secondary forest areas on privately-owned land outside the parks, a key question is whether public interests connected with external costs of deforestation warrant public intervention. The paper suggests that a differentiated approach to this and other questions is needed, depending on the costs and benefits involved, and it discusses incentives and regulations which influence land use, and makes proposals for reforms.