Land speculation and conservation policy leakage in Brazil

The Brazilian Amazon and Cerrado biomes have been subject to strong pressure from agricultural expansion over the past two decades. A common claim is that the associated tree cover loss was partly driven by speculative land acquisition. In this paper, we analyze the effects of information on planned road infrastructure improvements and changes in conservation policy implementation on expectations of forest conversion. We use a unique land price dataset covering the period from 2001-2012. Based on land rent and hedonic valuation theory, we argue that forestland prices convey information on expected future land use. We decompose forestland prices into a conventional forestland rent and a speculative part related to forestland conversion and alternative land use rents. Using a fixed-effect panel, we then assess whether, where, and to what extent changes in conservation policy affect forestland prices over time. Our results confirm that forestland prices contain expectations about converting forestland to agricultural or pasture land. We also find indications that the Brazilian land market conveys information about potential conservation policy leakage and explore this conjecture descriptively using dynamic deforestation hotspot maps.