forests
characteristics
► saleable
► left
commodity when harvested
standing, capital asset
 increased growth following year
 environmental services (watershed protection, wildlife
habitat)
► harvest
► time
or wait?
btw initial investment (planting) and recovery
(harvesting) LONG
harvesting decision
► when
to harvest?
 biological dimension
 economics dimension
biology
► growth
measured in cubic ft
► distinct
growth phases
 slow / rapid / slow
► abstracting
from differences in weather / fertility /
pests / fire / etc
► biological
model: douglas fir
tree growth, Douglas Fir
mean annual increment (MAI)
► MAI
= cumulative volume end of decade /
cumulative yrs of growth
► biological
decision rule: harvest when MAI
maximized
biological harvesting decision
annual incremental growth
► AIG=
change in volume / change in years
 marginal growth
► if
AIG>MAI, MAI increasing
► if
AIG<MAI, MAI decreasing
 similar to MC and ATC (GPA example)
economics
► use
basic biological growth model as basis
for economic decision rule
► harvest
benefits
at age that maximizes PV of net
two important costs
1.
planting costs (example: $1,000)
•
•
2.
borne immediately
no discounting
harvesting costs (example: $.30 / cubic ft)
•
•
time of harvest
discounted
economic harvesting decision
optimal harvest age
► discounting
shortens optimal harvest time
 less tolerant of slow timber growth
 comparing no harvest (increase in value of
timber) to harvest (sell and invest)
► high
discount rates also destroy incentive to
replant
sample problem
Age Volume (cubic ft)
10
700
20
1,000
30
3,000
40
6,000
50
8,000
Price: $2
Planting cost: $1,000
Harvest cost: $0.50
Discount rate: 3%
when to harvest
using biological rule?
using economic rule?
land conversion
► land
use
should be allocated to highest valued
► conversation
occurs when relative values of
competing uses change
allocating land to competing uses
Net benefits per acre
efficient allocation
► closest
► other
land to agriculture (A)
land to forest (B)
► maximizes
► efficient
net benefits
conversion occurs when these net
benefit functions change
changing net benefits
► agriculture
 population increases (need more food)
 new technology lower costs
► forests
 demand for forest products changes
sources of inefficiency
► perverse
incentives for landowner
 privately owned forests
►externalities
►undervaluing
standing forest: harvest inefficiently
large amount of timber
 publicly owned forests
►Brazil:
reduced taxes for agriculture; squatting (more
deforestation, more land acquired)
►US: concession agreements (limited term, too cheap)
sources of inefficiency
► perverse
incentives for nation
 biodiversity
►lost
biodiversity: external cost not borne by individual
loggers
 global warming
►lost
absorption and increased burning: external cost
not borne by individual loggers
sustainable forestry?
depends on what kind of sustainability
► economic
sustainability
 non-declining welfare among generations
 fully compatible with efficiency as long as
economic gains from harvest are reinvested and
shared with future
environmental sustainability
► be
able to harvest forever
► harvest
growth, leaving volume the same
► efficiency
► need
not necessarily compatible
to compare
 increasing value from delayed harvest
 increasing value from harvest + investment
how to correct inefficiencies?
► charge
harvest
concessionaires full social cost of
► debt-nature
swaps
 cancel debt in return for preservation
► royalty
payments
 preservation of biodiversity
 paid for genes obtained from resources