Forests Flashcards
(5 cards)
Forests
Trees are capital assets (value increases over time however they can be costly so need to look at opportunity cost of them)
need to seek the length of time to wait to harvest them
trees over benefits - oxygen, habitat
varying property rights (look at private ownership of forestry first)
Forest growth and biological rotation
V(t) = 10t + t2 - 0.01t3
rate of growth declines (about 33 years) and some will decay (71 years)
looking for the age that will maximise the mean annual increment (MAI) (average volume = v(t)/t) this is the biological rotation which will maximise mean value
The Wicksell Rotation
optimal aging problem
how long should i age a stand of trees? need to consider discounting and the interest rate
a private owner will compare returns of cutting now to waiting one more year
NB - maximising year (net returns to waiting = net returns to cutting)
cutting now = (P-C)V(To) = (P-C)V(T1)/(1+r) = waiting
the higher the r the shorter the rotation
wicksell rotation < biological rotation (for r above 2%)
The Faustmann rule
efficient forest management over time
need to include the value of the land and what to do with it
introduce site value (value of a forested piece of land)
allows for comparisons of the PV of expected future rents to other uses of it
will cut timber and replant when MNB = MNB of waiting one more year
(P - C) V(T0) - D + S = (P - C) (V(T0)+ change in V) - D + S /1+r
D = cost of replanting trees
S = site value
r(V(T0) - D) +rS = change in V = optimum = MB of harvesting now = MC of harvesting now
graph - as growth slows, benefits approach costs
T max NB of the forest resource
r = change in V / V(T0) - D + S RULE (time harvests so the rate of return = rate of interest)
Faustmann < Wicksell < Biological
Faustmann rule captures the present value in the timing of all future harvests (also takes into account future losses)
Non timber benefits
hard to sort out optimal rotation - habitats, carbon sinks, watershed protection
example: red wood peckers prefer older forests
change in V + H - marginal cost of harvest plus foregone benefit to the birds
efficient rotation is now longer
sometimes SMC may never cross MB thus would mean it would never be efficient to harvest
