Estimating Spatial Interactions in Forest Clearing∗

We estimate the effects of neighbors’ deforestation actions on individuals’ deforestation decisions in Costa Rica. We find evidence that neighbors’ effects are positive and significant. To address simultaneity and spatially correlated unobservable factors, we instrument for neighboring deforestation using neighboring land parcel characteristics. Under the presence of interactions, local forest levels and the country’s forest spatial pattern change. Policies that promote agricultural development or forest conservation in a specific area also affect deforestation rates in non-targeted neighboring areas. Moreover, positive interactions create conditions for multiple equilibria. This could affect the country’s stock of forest and could justify intervention to reach Pareto dominant deforestation outcomes.