Prospect Theory and Tenure Reform: Impacts on Forest Management

Abstract

We examine the role of risk and time preferences in how forest owners respond to forest certification. We test hypotheses from a two-period harvest model derived from prospect theory in the context of Fujian, China, where new forest certification started in 2003. Using survey and field experiment data, we find that certification resulted in reduced harvesting, and the effect was larger for households who are more risk averse and exhibited distorted probability weighting. In contrast, loss averse households increased harvesting after certification. These findings suggest that diverse individual preferences may be a source of impact heterogeneity for forest certification. (JEL Q23, Q56)