The Social Cost of Fiscal Federalism and the Depletion of China’s Native Forests

China's key forested region is located in the northeast. This region consists of state forest enterprises which manage harvesting and reforestation and have represented the most important source of wood supplies since the 1950s. Deforestation is a major problem there, however, and has resulted in several central government reforms. We develop a framework for assessing the social cost of state forest enterprise deforestation. We first develop a two-principal, one-agent model that fits the federalistic organization state forests, in that state forest managers make (potentially hidden) decisions under influence of provincial and central government policies and quotas meant to direct manager behavior. This model is used to derive an expression of the social cost of these hidden actions as well as a comparison of first and second best government policies. We then use panel data from a survey conducted by the Environmental Economics Program in China (EEPC) to compute social welfare losses and use a regression approach to confirm the main factors in these costs in practice. A sensitivity analysis shows that lower harvesting limits and a more accurate monitoring system are the keys to lowering social welfare loss. These are more important than conventional instruments used by the governments such as wages for managers that achieve certain targets. Through regression analysis we find that the remote areas with a higher percentage of mature natural forests are the ones that will always have the highest social welfare loss. These areas are the hardest to monitor, but our results show they must be a critical focus moving forward.

Name thesis:degree_name

M.S.

Level thesis:degree_level

masters

Discipline thesis:degree_discipline

Forestry

Department dc:contributor.department

Forest Resources and Environmental Conservation

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

2021

Author dc:creator

• Wang, Haoyu

Chair dc:contributor.committeechair

• Amacher, Gregory S.

Committee members dc:contributor.committeemember

• Xu, Jintao
• Cobourn, Kelly M.
• Schons, Stella Z.

• Deforestation
• Two-principal-one-agent model
• Social welfare loss
• Fiscal federalism

Statement dc:rights

• Attribution-NonCommercial-NoDerivatives 4.0 International

Licence dc:rights.uri

• http://creativecommons.org/licenses/by-nc-nd/4.0/

Language dc:language.iso

en_US

Handle dc:identifier.uri

http://hdl.handle.net/10919/103524

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/103524