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Abstract
Previous studies have suggested that market failures are household-specific and not
commodity-specific (de Janvry et al, 1991); transaction costs determine whether a
household is a buyer, seller or self-sufficient for a given good and how much it is going
to produce (Key et al, 2000). Focusing on fuelwood production in northern Uganda, this
paper extends previous studies by introducing fixed transaction costs associated with
reaching the market and the forest. We predict that households sort in space, with
autarkic households being located closest to the forest and farthest from the market, buyer
households located closest to the market and farthest from the forest and seller
households located at intermediate distances from the market and forest. We show that
the spatial predictions hold in partial and general equilibrium settings. We test the
predictions of our model using data from northern Uganda and find evidence that
supports the predictions from our theoretical model. The ensuing spatial-dynamic
simulations based on the static allow us to make forecasts of where forest degradation is
likely to occur as well as to model spillover effects resulting from the introduction of a
conservation intervention like a protected area.