Preliminary Draft – Please Do Not Cite without Permission Comments Welcome

Setting aside forested land for protection can lead to deforestation elsewhere, defined as “leakage”. Under some conditions, it can induce more forest cover near the protected area (“negative leakage”). We develop an analytical general equilibrium model to solve for leakage as a function of key economic variables, and we use it to generate testable hypotheses. We test these hypotheses for Indonesia using landsat data from 2000 and 2012 – before and after eight new national parks were protected in 1999-2004. We estimate deforestation near these parks compared to other unaffected areas, and how it depends on local economic characteristics. To take the spatial nature of deforestation into account, we generate our counterfactual by matching over characteristics of the parcel itself and of its neighbors further away. Conservation agents and social planners can use these results to choose locations of protected areas to help maximize total tree cover.