forests

1. forests

2. characteristics • saleable commodity when harvested • left standing, capital asset • increased growth following year • environmental services (watershed protection, wildlife habitat) • harvest or wait? • time btw initial investment (planting) and recovery (harvesting) LONG

3. harvesting decision • when to harvest? • biological dimension • economics dimension

4. 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

5. tree growth, Douglas Fir

6. mean annual increment (MAI) • MAI = cumulative volume end of decade / cumulative yrs of growth • biological decision rule: harvest when MAI maximized

7. biological harvesting decision

8. 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)

9. economics • use basic biological growth model as basis for economic decision rule • harvest at age that maximizes PV of net benefits

10. two important costs • planting costs (example: $1,000) • borne immediately • no discounting • harvesting costs (example: $.30 / cubic ft) • time of harvest • discounted

11. economic harvesting decision

12. 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

13. sample problem Age Volume (cubic ft) 10 700 20 1,000 30 3,000 when to harvest 40 6,000 using biological rule? 50 8,000 using economic rule? Price: $2 Planting cost: $1,000 Harvest cost: $0.50 Discount rate: 3%

14. land conversion • land should be allocated to highest valued use • conversation occurs when relative values of competing uses change

15. allocating land to competing uses Net benefits per acre

16. efficient allocation • closest land to agriculture (A) • other land to forest (B) • maximizes net benefits • efficient conversion occurs when these net benefit functions change

17. changing net benefits • agriculture • population increases (need more food) • new technology lower costs • forests • demand for forest products changes

18. 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)

19. 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

20. 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

21. environmental sustainability • be able to harvest forever • harvest growth, leaving volume the same • efficiency not necessarily compatible • need to compare • increasing value from delayed harvest • increasing value from harvest + investment

22. how to correct inefficiencies? • charge concessionaires full social cost of harvest • debt-nature swaps • cancel debt in return for preservation • royalty payments • preservation of biodiversity • paid for genes obtained from resources