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UCSB ESM 204 - The economics of forest management

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The economics of forest managementWhy manage forests?Forest management policiesSubsidiesTaxesRegulationsForest concessionsForest certificationCarbon offsetsEnhanced property rightsUS Nat’l Forests & GrasslandsPowerPoint PresentationPublic forest management (US)A biological modelShape of Q(t)Back to the optimization problemGraphicallyA bio-economic modelResult of bio-economic modelExtensions of this modelThe economics of forest managementNational and international forest policyWhy manage forests?Manage deforestationGlobal forest  40% since pre-ag times.Tropical deforestation•Biodiversity, carbon sequestration, etc.•130,000 km2 per yearTimber supplyIncentives for private landowners to internalize externalities & provide public goods.Forest management policiesCommon policiesSubsidies, taxes, technology standards, silvicultural practice regulations.Relatively new policies Forest certification, carbon offsets, property rightsSubsidiesFree seedlings, management assistance, financial aid – common in developing worldTradeoff often between forest and agricultureSuccess depends on relative prices of forest vs. agricultural productsDeveloping world: Collection of wood for fuel a major problem.Some success with subsidies for woodlots.TaxesUsed on private forestland to Capture scarcity rent and/orCorrect for externalitiesMonitoring & information problems pose challenges, especially in developing worldStatistics on harvested timber underestimatesHigh-gradingRegulationsGovernment may dictate silvicultural methodSeed-tree, shade-tree, even aged, clear-cutRegulations mitigate environmental harmBuffer strips, wood in streams, structured canopy, reforestation requirements, road stipulationsForest concessionsFederally-owned forests (e.g. Nat’l Forest in US) grant concessions to private forestry companies.Typically auction off right to harvest a certain tract of forest, may be corrupt.Fees usually not market value (unless auction)Property rights problem – no incentive to care for land since don’t own it.May require environmental bond.Forest certificationA form of “green labeling”Provides information to consumersConsumers will be paying for a public goodInternationally-recognized certifiersForest Stewardship CouncilCertified 30 million hectares in 56 countriesActs like distinct (substitute) marketCarbon offsetsFinancial incentives to  storage of carbon by keeping trees in ground, reforesting, or planting high C-sequestering species.Problem: usually ignores biodiversity considerations (e.g. native vs. exotic) Several global carbon payment funds to which countries can apply.Hard to verify what country would have doneEnhanced property rightsMost countries: state is largest forest landownerMonitoring, ignorant of local needs, poor revenue collection, poaching (open access), limited infoProblems when gov’t takes over from community management – ignores local customs and lawsProperty rights can be shared with locals“Panchayat forestry” (Nepal), “joint forest management” (India), “community-based” forestry (Philippines, others), “communal tenure” (advocated by World Bank).Combination with other instruments (e.g. taxes)US Nat’l Forests & GrasslandsPublic forest management (US)USFS: 156 Nat’l Forests, 194 million acresConcessions: terms of contract affectRotation interval, nature of harvest, non-timber values, depletion of forestPricing of concessionsOften p < market value, sometimes p < c(1) few buyers, (2) external costs ignoredTenure length < rotation intervalA biological modelManaging tract of trees of certain age.Choose rotation interval to maximize total volume per unit time (max sustainable yield)?Q(t) = volume of wood at age t.maxT Q(T)/TShape of Q(t)Vol.Q(t)Time, tBack to the optimization problemProblem: maxT Q(T)/T(TQ’ – Q)/T2 = 0Q(T)/T = Q’(T)Average growth rate = marginal growthGraphicallyVol.Q(t)Time, tT1Q(t)Average growth at time T1is slope of line from originto Q(T1)Marginal growth at time T1is slope of Q(t) at time T1Q(T*)/T* = Q’(T*)T*A bio-economic modelIncorporate: price, harvest cost, discounting.p = price per MBF, c = cost per MBF, r=discount rate.Since trees grow continuously, we’ll discount continuously: 1/(1+r)t  e-rtmaxT (p-c)Q(T)e-rTResult of bio-economic modelTake derivative, set = 0.T* is place where % growth rate equal discount rate:Q’(T*)/Q(T*) = r“Harvest when tree growth rate equals rate of growth of next best alternative”.Think of trees as money in the bank.Extensions of this model Can includeMultiple rotationsReplanting costsNon-timber values of forest (water, recreation, biodiversity, etc.)Extended models will allow us to analyze different economic policies (e.g. tax, site fees, license fees,


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