ENVS 55, Lecture _15

ENVS 55, Lecture _15 - ENVIRONMENTAL STUDIES 55 LECTURE...

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ENVIRONMENTAL STUDIES 55 LECTURE #15, 2/15/08 Overview Last time, we discussed the economics of exhaustible resources. Key points: In market economies, people view natural resources as a form of capital wealth. They face incentives to sell-off (or conserve) resources if the profit earned on each unit of the resource is growing at a rate below (or above) the rate of return available on financial markets Hotelling’s rule – In competitive equilibrium, resource rents (price – extraction cost) should rise at the market rate of return o Low discount rates provide incentives to conserve natural resources for future use o High discount rates reduce the present value of future benefits, thus favoring short-term resource extraction 1
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Topic for today: How discounting relates to the conservation of ecological resources We’ll start with a simplified model of forest resource management from the perspective of a timber company. We’ll then move on to consider the role of discounting in the economics of the fishery Reading = Colin Clark’s “The Economics of Overexploitation.” Classic paper published in Science in 1973 2
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Discounting and Forest Resources Forest management is discussed in the reading by Kuuluvainen and Tahvonen This topic was a major concern of the Conservation Movement (c. 1900). Aimed to provide sustained yields based on biological management criteria. Economics played a secondary role Optimal Rotation: How long to grow a stand of trees before clear- cutting? Already assumes a particular management strategy. Forests managed like an agricultural crop o Key difference: Time scale = decades rather than single growing season Starting point for analysis: Functional relationship between timber volume (S(t)) and stand age ( Table ) 3
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Traditional approach: Maximize mean annual increment = average growth per year through time of harvest = S(t)/t. This is timber volume divided by stand age Example given by Kuuluvainen and Tahvonen for Norway Spruce in Scandinavia (p. 126). MAI maximized with 70-year rotation period
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ENVS 55, Lecture _15 - ENVIRONMENTAL STUDIES 55 LECTURE...

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