Debt Peonage and Over-Deforestation in the Amazon Frontier of Brazil
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This paper proposes that under the conditions typical of the Amazon frontier of Brazilabsence
of a wage labour market and abundant supply of land-farm-family labour is a positive function
of debt. This labour supply response, known as "debt peonage," provides for indirect management of farm
labour by local merchants via the crop lien mechanism. A microeconomic model of the family farm shows
that debt-labour leads to labour-intensive farming but land-extensive farming leads to over-deforestation.
Correct colonization policy should then provide for market structures that reduce indebtedness and
deforestation. This would also reduce the environmental consequences of settlement in the Amazon.