Restoration Responsibility in a Dynamic Game of Deforestation, Production, and Pollution Accumulation

Abstract

This paper examines which country should undertake forest restoration when production and deforestation jointly degrade environmental absorption capacity. We develop a two-country dynamic game in which a forest owner derives revenues from deforestation while a non-owner benefits from production; both generate emissions, but only deforestation directly reduces carbon sink efficiency. Restoration is costly and subject to inertia. Consistent with international governance frameworks, the restoring country commits to a predetermined restoration path, while the non-restorer may either commit or retain strategic flexibility. Under homogeneous strategies, long-run environmental outcomes are independent of which country restores. Under heterogeneous strategies, however, the allocation of restoration responsibility becomes crucial: assigning restoration to the producer may aggravate environmental degradation and lead to history-dependent, potentially irreversible dynamics, whereas assigning it to the deforester mitigates opportunistic behavior and promotes more stable outcomes. A novel finding is that history-dependency is both control-specific and parameter-dependent: the deforester’s deforestation and restoration controls exhibit strong Skiba behavior robustly across parametric regimes, while the producer’s emissions exhibit weak Skiba behavior when economically dominant but become more sensitive to initial conditions when the deforester dominates. These results reflect an asymmetry in transmission channels and suggest that robust environmental protection requires aligning restoration responsibilities with forest ownership. (Joint with Giorgio Gnecco -IMT - School for Advanced Studies, Lucca, Italy , Eugene Khmelnitsky-Tel Aviv University, Ramat Aviv, Israel, Marcello Sanguineti-University of Genova, Genova, Italy