Is there too much or too little natural forest in the Atlantic Zone of Costa Rica?

Deforestation rates in developing countries are often regarded as excessive, despite the lack of a satisfactory economic benchmark to evaluate this claim. This paper provides such a benchmark for a particular region in Costa Rica. The monetary value of the various functions performed by tropical rainforests is estimated and used in a conventional optimal control model to compute the globally optimal natural forest stock in the Atlantic Zone of Costa Rica. The results indicate that the current forest stock is suboptimally large, suggesting that promoting further forest conversion can increase economic welfare. The current stock would be near optimal only when (i) the annual benefits of carbon fixation are extremely high and (ii) the government of Costa Rica would be fully compensated for this positive externality.