L15. Forest economics

L15. Forest economics - ForestEconomics n n n Forests cover...

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Forest Economics n Forests cover 30% of Earth’s land n Types of Forests q Tropical Forests n Between the equator and latitude 350 north and south q Temperate n Between latitude 350 and 550 north and south q Boreal q Within these types n Rain Forest n Moist deciduous n Dryland n Softwood n Hardwood n Distribution of Forests q More than 60% of worlds forests are in 7 countries. n Brazil, Canada, China, Indonesia, Russia, United States and Zaire
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Forest Harvest Decisions n When should a tree be cut? n Assumptions q No non-timber values involved q Timber output of community is small relative to total market q Replanting is immediate n Objective: maximize sustainable value of timber harvest n Biology of tree growth q Growth in quantity of wood is modest till 40 years q Growth is rapid from 40-60 years q Growth slows after 60 years and tends to zero at 100 years 10 40 60 80 100 20
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Forest Harvest Decisions n Is the maximum amount of wood optimal? n Is average yield (cu ft/ year) optimal? n What is the optimal timber rotation? Age of Trees Total volume of wood (cu. Ft) Average volume of wood (cu. Ft) Annual increase in volume (cu ft./year) 0 0 0.0 0.0 10 80 8.0 8.0 20 200 10.0 12.0 30 400 13.3 20.0 40 720 18.0 32.0 50 1360 27.2 64.0 60 1660 27.7 30.0 70 1840 26.3 18.0 80 1960 24.5 12.0 90 2040 22.7 8.0 100 2090 20.9 5.0 110 2090 19.0 0.0 120 2090 17.4 0.0 130 2090 16.1 0.0 140 2090 14.9 0.0
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n Notation q V0: monetary value of wood if harvested this year q V1: monetary value of wood if harvested next year q ΔV=V1- V0: gain in value from one year growth q C: harvest cost q r: discount rate q S: present value of all future net benefits – forest harvested under optimal rotation n Assume that forest is optimally rotated after harvesting n If harvested this year: (V0-C) + S n If harvested next year: ((V0+ΔV-C) + S)/(1+r) n Under optimal rotation what is the relationship between the two terms above? q From the optimal conditions derive: ΔV= ((V0-C) + S)r n The condition implies that benefits from waiting one year equal the costs of waiting Optimal Timber Rotation
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Optimal Timber Rotation n Growth starts at low levels. q At year zero growth is zero. q As the forest ages growth reaches maximum q Then declines to zero. q This determines the slope for ΔV n As volume for wood increases gains from harvesting are higher q This implies ( (V0-C) + S)r is upward sloping q Flattens out as volume of wood stabilizes n The intersection of these two curves provides the optimal rotation Optimal Rotation Time $ ((V0-C) + S)r ∆V t*
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n What happens when harvesting costs rise? q
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This note was uploaded on 11/18/2011 for the course ECON 374 taught by Professor Sumeetgulati during the Winter '11 term at UBC.

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L15. Forest economics - ForestEconomics n n n Forests cover...

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