Beyond the Basic Forest Resource ModelExtending the Basic ModelSlide 3Slide 4Slide 5Slide 6Slide 7Slide 8Inefficiencies in Forest ManagementSlide 10Slide 11Slide 12Slide 13Slide 14Slide 15Beyond the Basic Beyond the Basic Forest Resource ModelForest Resource ModelMonday, April 10Monday, April 10Extending the Basic ModelExtending the Basic ModelFuture value of land, in trees or some other use, Future value of land, in trees or some other use, will affect opportunity cost of harvesting treeswill affect opportunity cost of harvesting treesChanges in planting and harvest costs affect Changes in planting and harvest costs affect future value of landfuture value of landTimber prices have been rising over time.Timber prices have been rising over time.What about other values of forests beyond the What about other values of forests beyond the timber products?timber products?Using Field’s Notation:Using Field’s Notation:VV00: value of the wood that would result if harvested : value of the wood that would result if harvested this year (p x qthis year (p x q00).).VV11: value of the wood that would result if harvest is : value of the wood that would result if harvest is delayed one year (p x qdelayed one year (p x q11).).ΔV: VΔV: V11- V- V00 or the change in value between the two or the change in value between the two years (what you lose if you cut in year 0)years (what you lose if you cut in year 0)C: cost of harvest (c x q)C: cost of harvest (c x q)r: discount rater: discount rateS: PV of all future net benefits (all future timber S: PV of all future net benefits (all future timber harvests with efficient management or other known harvests with efficient management or other known uses)uses) SCV )(0Proceeds if harvested this yearrSCVV1)(0Proceeds if harvested next year(Marginal cost of harvesting now)(Marginal benefit of harvesting now)SCVrSCVV)(1)(00(MC = MB)SCVrSCVV)(1)(00 )1()(1)()1(00rSCVrSCVVr )1()1)((00rSrCVSCVV )1()1)((00rSrCVSCVV SrSCrCrVV 00SrCrVrV SrrCVV  )(0ΔV: V1- V0 or the change in value between the two years what you lose if you cut in year 0Δ V = marginal cost of harvest (opportunity cost)(V0-C)r +Sr = marginal benefit of harvestSrrCVV  )(0(V0-C)r +Sr: what you receive if you cut in year 0$Time (years)(V0-C)r +Sr=MBΔV=MCtGraphically:Inefficiencies in Forest Inefficiencies in Forest ManagementManagementExternal costs of harvestExternal costs of harvestExternal benefits of standing treesExternal benefits of standing treesPlanning horizons (public land)Planning horizons (public land)$Time (years)(V0-C)r+Sr=MBΔV=MCtExternal costs associated with timber harvest: some C is external, MSB is less than MPB$Time (years)(V0-C)r+Sr=MBΔV=MCtPolicy option: limit road construction and enforce rules to limit erosion (increase C – internalize externalities)$Time (years)(V0-C)rΔV=MC+SrtΔV + HExternal benefits of standing timber, e.g. habitat, means you give up more when you harvest$Time (years)(V0-C)rΔV+SrtΔV + HPolicy Option: Charge severance tax in the interest of habitat conservation – increase C to decrease MPBtSrrCVV  )(0SrrCVcsV  )(0Policy option: what if the owner of trees can sell carbon sequestration “credits”?Trees as source of carbon sequestration$Time (years)(V0-C)r +SrΔV=MCtMarket for carbon sequestration – owner of trees sells carbon sequestration services (and gives up those sales if the trees are