Forestry Economics

1
Forestry Economics

• David Letson
• Marine Affairs/Economics
• University of Miami

2
Opening

• A renewable resource.
• Balancing consumptive and capital uses
• Two sets of issues
• efficient allocation and
• counterexamples, e.g., deforestation.

3
Descriptive Stats

• 42 million acres of tropical forests cleared each
  year, an area the size of Washington.
• Half of timber harvested is for fuel.
• One-third of U.S. is covered by forests. 51 of
  these lands are privately owned.

4
Basic economics

• Many species are long-lived.
• Forests provide variety of products/ services
• Timber and non-timber values.
• Harvesting diminishes other types of value.

5
Key economic concepts

• the Ramsey Rule
• analogous to Hotellings Rule
• MB of current harvest PV of future losses
• Equalize returns to consumptive and capital uses
• optimal rotation interval
• period between one cut and the next
• economically efficient rule vs biological
  decision rule

6
Biology

• Tree growth is measured by volume.
• Most species go through three distinct phases.
• Growth depends on many things.
• Some can be controlled by management.
• Some cannot.
• Mean annual increment (MAI) is cumulative volume
  of stand divided by of growth years.

7
Example Pacific NW Douglas Fir

• single cut model
• marginal increment and current increment
• discount rates
• planting and harvesting costs

8
Multiple Harvests

• Simple model capital gain from letting trees
  grow gt as discount rate.
• Infinite horizon capital gain also includes
  opportunity cost of delaying next cycle.
• Adding new type of cost shortens optimal harvest
  period.

9
Extensions of Basic Economic Model

• Rising output prices
• Non-timber values
• Carbon sinks
• Biodiversity

10
Deforestation

• Clearing of forested lands for non-forest uses.
• Open access leading to capture problems.
• Policies contribute to loss
• Governments charge low royalties.
• Concessions uncertain or short in length.
• Restrictions or taxes on export of unprocessed
  logs.
• Land resettlement and agricultural subsidies
• Subsidized infrastructure

11
Deforestation and Property Rights

• Study of 120 countries population pressure,
  income growth, and insecure ownership.
• Weak association with population growth
• Inverse relationship with income.
• Strong association with insecure ownership.

12
International Governance

• International Tropical Timber Agreement
  sustainably produced tropical timber.
• Developing nations include all timber.
• Agreement lacks
• definition of sustainable practices
• way of compensating nations that preserve
  forests.

13
Some Encouragement

• UNESCOs Man and the Biosphere Program protects
  244 reserves in 65 countries.
• Brazils protected areas 12 million hectares.
• Indonesia has gt 500 conservation areas.
• Peru has more than 20 parks and protected areas
  adding up to gt 4.3 million hectares.

14
Conclusions

• Ramsey Rule and optimal rotation intervals
• Non-timber values
• Deforestation
• Public policy failures
• Open access
• Insecure ownership