The economics of forest management National and international forest policy Why manage forests Manage deforestation Global forest 40 since pre ag times Tropical deforestation Biodiversity carbon sequestration etc 130 000 km2 per year Timber supply Incentives for private landowners to internalize externalities provide public goods Forest management policies Common policies Subsidies taxes technology standards silvicultural practice regulations Relatively new policies Forest certification carbon offsets property rights Subsidies Free seedlings management assistance financial aid common in developing world Tradeoff often between forest and agriculture Success depends on relative prices of forest vs agricultural products Developing world Collection of wood for fuel a major problem Taxes Used on private forestland to Capture scarcity rent and or Correct for externalities Monitoring information problems pose challenges especially in developing world Statistics on harvested timber underestimates High grading Regulations Government may dictate silvicultural method Seed tree shade tree even aged clearcut Regulations mitigate environmental harm Buffer strips wood in streams structured canopy reforestation requirements road stipulations Forest concessions Federally 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 certification A form of green labeling Provides information to consumers Consumers will be paying for a public good Internationally recognized certifiers Forest Stewardship Council Certified 30 million hectares in 56 countries Acts like distinct substitute market Carbon offsets Financial 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 done Enhanced property rights Most countries state is largest forest landowner Monitoring ignorant of local needs poor revenue collection poaching open access limited info Problems when gov t takes over from community management ignores local customs and laws Property 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 Grasslands Public forest management US USFS 156 Nat l Forests 194 million acres Concessions terms of contract affect Rotation interval nature of harvest nontimber values depletion of forest Pricing of concessions Often p market value sometimes p c 1 few buyers 2 external costs ignored Tenure length rotation interval A biological model Managing 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 T Shape of Q t Vol Q t Time t Back to the optimization problem Problem maxT Q T T TQ Q T2 0 Q T T Q T Average growth rate marginal growth Graphically Vol Q t Q T T Q T Q t Marginal growth at time T1 is slope of Q t at time T1 Average growth at time T1 is slope of line from origin to Q T1 T1 T Time t A bio economic model Incorporate 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 rt maxT p c Q T e rT Result of bio economic model Take 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 include Multiple rotations Replanting costs Non 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 etc