Contagious development: Neighbor interactions in deforestation

To address simultaneity and the presence of spatially correlated unobservables, we measure for neighbors' deforestation using the slopes of neighbors' and neighbors' neighbors' parcels.

We estimate neighbor interactions in deforestation in Costa Rica. To address simultaneity and the presence of spatially correlated unobservables, we measure for neighbors' deforestation using the slopes of neighbors' and neighbors' neighbors' parcels. We find that neighboring deforestation significantly raises the probability of deforestation. Policies for agricultural development or forest conservation in one area will affect deforestation rates in non-targeted neighboring areas. Correct estimation of the interaction reverses the naive estimate's prediction of multiple equilibria.