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AGEC/FNR 406 LECTURE 29

AGEC/FNR 406 LECTURE 29. 30-year old Loblolly Pine plantation. Forests - characteristics. 1. Renewable 2. Interactive 3. Common, private, or public property 4. Benefits include: Private goods Public goods.

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AGEC/FNR 406 LECTURE 29

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  1. AGEC/FNR 406 LECTURE 29 30-year old Loblolly Pine plantation

  2. Forests - characteristics 1. Renewable 2. Interactive 3. Common, private, or public property 4. Benefits include: Private goods Public goods

  3. Economic Analysis Same principles as fishery: Efficiency achieved where MC = MB IF…property rights are structured to allow markets to capture ALL costs & benefits (including social) This assumption is rarely met. TR = P * Q Q determined from growth function Price determined by market for some outputs

  4. Growth Function (logistic) output (Q) = wood input (X) = time (waiting)

  5. MP and AP - definitions Marginal Product (MP) periodic annual increment (PAI) marginal change in volume = Q/X Average Product (AP) mean annual increment (MAI) total volume/total input = Q/X (If managing for perpetual physical volume only, then find maximum MAI)

  6. Growth: output as a function of time

  7. Rotation length - definition Period of time a given area of timber (stand or individual tree) is held, i.e. time between planting or natural regeneration, and harvesting

  8. Sequence of timber rotations (Rt) from given tract of land Time line R1 R2 Rn Harvest R1 Harvest R2 Harvest & plant Harvest & plant Harvest & plant Plant R2 Plant R1 Plant R3

  9. Optimal rotation varies by owner category Households - utility maximizers Forest products firms - profit maximizers Public - multiple uses, utility maximizers Single age/species stand vs. multiage, multispecies stand – very different analysis required.

  10. Rotation based on physical product only – two choices 1. Choose rotation length to maximize volume over one rotation: optimal length where Q is at maximum 2. Choose rotation to maximize volume in perpetuity: optimal length is where MAI is at its maximum (see Table11.2 in text, referred to as culmination of MAI)

  11. Economic efficiency criteria 1. Static efficiency Maximize net benefits of one optimal rotation 2. Dynamic efficiency Maximize net benefits from continuous series of rotations, where the net benefits from future rotations are discounted back to present value terms.

  12. Key economic insight:net benefits are maximized where NB is maximized, i.e. where TB - TC is greatest where MC = MB (same thing!) Economic criteria:maximize net benefit (static)maximize present value of NB (dynamic)

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