Market Power and Environmental Policy in the Amazon
Wednesday, April 5, 2023
12:00 pm-1:15 pm
Taylor-Hibbard Seminar Room (Rm103)
Using cattle transaction records and land transition data, I develop and estimate a quantitative spatial model of cattle sourcing and land use change. Cattle ranchers face a concentrated set of buyers – slaughterhouses – which source strategically in each market, extracting markdowns which vary spatially according to local market concentration and supply elasticities. This dispersion in markdowns slightly favors more emissions-intensive regions. A counterfactual scenario with homogeneous markdowns would cause heterogeneous changes in deforestation and emissions – but would reduce aggregate emissions. On the policy side, instruments such as cattle taxes would have limited effectiveness due to incomplete pass-through. They would also increase market concentration through exit. On the other hand, targeted instruments such as market exclusion policies (if properly implemented) face much higher pass-through and are thus more effective at reducing emissions. Taken together, these results suggest that (i) resolving allocative inefficiencies from markdown dispersion need not imply more environmental degradation, and (ii) targeted supply chain policies can circumvent some of the frictions created by market power.