Assessing the performance of voluntary environmental agreements under high monitoring costs: Evidence from the Brazilian Amazon

Voluntary environmental arrangements generally coexist with State-based and private rules, creating a property rights system that legitimizes certain behaviors. In a world of positive transaction costs, legitimacy ensues from imperfect monitoring activities, opening room for opportunism. In this pap...

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Bibliographic Details
Published in:Ecological economics 2023-12, Vol.214, p.107982, Article 107982
Main Authors: Miranda, Bruno Varella, de Oliveira, Gustavo Magalhães
Format: Article
Language:English
Subjects:
Amazonia
Brazilian Amazon
Cattle supply chain
credit
deforestation
ecological economics
environmental policy
Transaction costs
Voluntary agreements
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Summary:Voluntary environmental arrangements generally coexist with State-based and private rules, creating a property rights system that legitimizes certain behaviors. In a world of positive transaction costs, legitimacy ensues from imperfect monitoring activities, opening room for opportunism. In this paper, we discuss how the existence of multiple rules in a scenario of high monitoring costs affects the performance of an environmental policy. We discuss the case of deferred prosecution agreements (TAC, acronym in Portuguese), which are voluntary arrangements designed with the goal of incentivizing slaughterhouses to monitor the environmental practices of ranchers in the Brazilian Amazon. More specifically, we study how the signature of a TAC agreement affects deforestation rates in the Brazilian Amazônia Legal region at the municipality level. This paper adopts a difference-in-differences approach to analyze a sample of Brazilian municipalities between 2006 and 2017. Our results, which remain robust across alternative estimators and subsamples, show that the signature of a TAC agreement increases deforestation rates by 0.2 standard deviations. We argue that the signature of a TAC agreement, by creating an imperfect proxy for “good behavior” that enables both compliant and non-compliant organizations to access credit, may incentivize deforestation in the Brazilian Amazon.
ISSN:0921-8009
1873-6106
DOI:10.1016/j.ecolecon.2023.107982