Upload
pier
View
25
Download
4
Tags:
Embed Size (px)
DESCRIPTION
Unique Characteristics of Forests and Their Management (Economic) Implications. Management Decisions Complicated by. Joint production Externalities Non-marketed outputs Wide variety of “types” of owners. Management Decisions Complicated by. Immobility of trees Location utility - PowerPoint PPT Presentation
Citation preview
Unique Characteristics of Forests and Their Management (Economic) Implications
• Joint production• Externalities• Non-marketed outputs• Wide variety of “types” of owners
Management Decisions Complicated by
Management Decisions Complicated by
– Immobility of trees• Location utility
– Inventory vs. economic supply
– Long production period
– Dual nature of trees• Capital (factory &
machinery)• Product
JOINT PRODUCTION
Joint Production• Forest provides multiple (joint)
“outputs”– Wood– Water– Wildlife habitat– Recreation, etc.
• How does a manager simultaneously determine appropriate level of output of each considering tradeoffstradeoffs among outputs?
Joint Production
– Production function is a biological growth process• Highest cost input
is time, an opportunity cost
– Opportunity to sell now instead of later
Production Function• Relationship
between inputs (age) and outputs (volume)
Input (age)
Output(stocking level)
Inflection point
Biological maturity
Production FunctionVolume Longleaf Pine, SI 80, Natural
Stand (Schumacher & Coile, 1960)
0100200300400500600700800900
1000
0 20 40 60 80 100
Age
Cubi
c Fe
et
Externalities
Externalities• Positive - decision to do one thing
results in unintended but positive result– e.g., attract new species of bird
Purple Gallinule
Externalities• Negative - decision to do one thing
results in unintended but negative result– displace indigenous species of bird
Indigo Bunting
Non-Marketed Outputs
How can production decisions be made without knowledge of value of
output?• Not being exchanged in a market doesn’t
mean something doesn’t have value• Value can be estimated by,
– “Cost” to produce the output• Cost of purchased inputs• Value of other outputs given up
– What consumers would be willing to pay if they had to
Types of Owners –
Who’s making the management decisions
Types or Owners• Issue is mix of types of
owners in an ecosystem– Public
• Federal • State• County• Local
– Private• Industrial• Non-industrial
– Investor– Farmer– NGO (non-governmental
organization), e.g. land trust
Context In Which Decisions Are Made
Matters!• What is affect of
type of owner?– Public agency– Integrated
industrial firm– Private non-
industrial (NIPF)– Timber Investment
Management Organization (TIMO)
Public Agencies
• Management objectives set by large number and variety of interest groups
• Conflicts among interest groups difficult to resolve
• Political pressures may dictate budget and land use decisions
IntegratedIndustrial
Firms• Profit motivated• Forest practices constrained by AF&PA
Sustainable Forestry Program, public pressure, and regulations
• Most productive forest land• Forest land is security for conversion
facilities
NIPF• Largest class of forest
owner• Highly variable motives for
owning land• Management of any type
may be low priority• Aesthetics and wildlife
frequently a high priority
TIMO
• Private equity capital• Acquire lands sold by vertically integrated
firms (also buy conversion facilities)• Tax benefits passed through to owners
with no corporate income tax• Land need to be “churned” every 10 to 15
years, making long-term management questionable
Immobility of Trees
Immobility of Trees• Location Utility
– Forests have value in part based on their location
– Trees have in-place value as part of a forest– Conversion value requires harvesting and
transportation of cut products
Inventory vs. Supply*
* Term always used in economic context in this course
Inventory vs. Economic Supply
• Inventory is total physical volume present– US Forest Service
Forest Inventory Analysis (FIA)
• Estimate of total volume
Inventory vs. Economic Supply
• Economic supply is amount of timber owners are willing to sell at some price over a specified time period– Can’t measure directly
• Deduced from observed market equilibrium points
Long Production Period
Long Production Period• High ratio of
inventory to output– Inventory of 3 to
6 MBF per acre yields growth of 100 to 500 bd.ft. per acre per year
– 3% ratio
PAI as % of Stocking
0
1
2
3
4
5
6
7
8
0 20 40 60 80 100
Years
Perc
ent
Long Production Period
• Growing stock is “capital”– Has monetary value– Holding it for another year incurs an
“opportunity cost”, • income not realized and used for something else
• Growth is the output– Growth is inventoried, added to growing stock
Long Production Period
• Opportunity cost is measured by income foregone– Value of growing stock times return that could
be earned if growing stock was converted to cash and invested elsewhere
– Potential earnings measured by an interest rate that reflects earnings from other investment opportunities available to the owner
Long Production Period• Example
– Growing stock is worth $100,000 today if sold on the stump
– If left to grow another year growing stock would be worth $110,000
– If growing stock is sold and the $100,000 invested elsewhere it would be worth $120,000 one year later.
– Return on timber is $10,000 or 10%– Return elsewhere is $20,000 or 20%
Dual Nature of Trees
• Capital– Land – fixed input– Timber growing stock – variable input
• Product produced – Annual increase in volume, i.e. timber growth– Other non-timber products and benefits
Dual nature of treesLevel of capital investment
• Typical factory– Size of building, and – Number and capacity
of machines
• Forest– Acres of forestland– Volume of timber
growing stock
Dual nature of treesOperating decisions
• Rate at which machines are operated– Speed and hours per
week• “Rotation” length
– Increasing rotation length in turn increases capital investment
Perspective Matters:
Individual Tree, Stand, Forest,
Ecosystem
Perspective Matters• Decisions
based on a single tree– Diameter limit– Crop tree
selection– Financial
maturity
Perspective Matters
• Decisions based on a stand– Even-aged
•Optimal rotation length
– Uneven-aged•Single tree
selection Two-age shelterwood
Perspective Matters• Decisions
based on multiple stands– Unregulated
• Irregular harvest
– Regulated• Regular
harvest Even-aged Hardwood Stands on Daniel Boone National Forest
Perspective Matters
• Decisions based on ecosystems– Multiple
objectives– Must
manage across pro-perty lines Forested ridges in Central
PA are important watersheds