Further generalization of Faustmann's formula for stochastic interest rates

Markov decision process (MDP) models generalize Faustmann's formula by recognizing that future stand states, prices, and interest rates, are not known exactly. Buongiorno (Forest Science 47(4) 2001) presents a dynamic programming and a linear programming formulation of the MDP model with a fixed interest rate. Both formulations are generalized here to account for a stochastic interest rate. The objective function is the expected present value of returns over an infinite horizon. It gives, like Faustmann's formula, the value of the land and the eventual standing trees. The changes between stand states, prices, and interest rate, are represented by Markov chains. Faustmann's formula is a special case where the change from one state to another has 0 or 1 probability, and the interest rate is constant. The MDP model applies to any stand state, even- or uneven-aged, and the best decisions are tied uniquely to the current system state. An example shows the effects of recognizing variations in interest rate on the land expectation value, and the cost of ignoring them.     

Colonialism and conservation: Commercialisation of forests and decline of tribals in Madras Presidency, 1882–1947

This article attempts to analyse the colonial forest policy and its impact on the environment and tribals in Madras Presidency during the post-Forest Act period (1882–1947). During this period, the colonial regime has actively encouraged commercialisation of forest resources while several restrictions were clamped up on the tribals and other forest users. Here it is argued that the initiatives of the state towards conservation were primarily intended to curtail the access enjoyed by tribals and other forest users to facilitate commercial exploitation. Plunder of forest wealth continued unhindered in a systematic manner leading to denudation of vast stretches of green cover and a drastic decline in the living conditions of the tribals in Madras Presidency.     

Taxation, life-time uncertainty and non-industrial private forest-owner's decision-making

The nonindustrial private forest (NIPF) owner's consumption and harvesting decisions are investigated under inheritance and capital income taxes using a two-period model. The impact of the forest-owner's age is introduced into the analysis through a parameter of perceived probability of surviving through a future period. This allows us to study the impacts of ageing on consumption and harvesting decisions as well as to see how the impact of taxes changes among different age groups of forest-owners. The results show that current consumption first decreases and then increases when moving from younger to older individuals regardless of whether non-timber assets are more or less heavily taxed through bequests than consumption. In general, we find that tax effects are dependent on the forest-owner's age. Age tends to intensify the increasing effect of the forest bequest tax on harvesting. The same is true with respect to the decreasing effect on harvesting of the inheritance tax imposed on non-forest assets. Furthermore, the forest-owner's age tends to intensify the effect on harvesting of the capital income tax imposed on forest assets, but diminishes the effect on harvesting of the capital income tax imposed on non-forest assets.     

Effects of litigation under the Endangered Species Act on forest firm values

The Endangered Species Act (ESA) has been a source of litigation and subject to court interpretation during the past several decades. In this study, event analysis was employed to examine the impact of six court decisions related to the ESA on the financial performance of U.S. forest products firms. The finding of abnormal returns revealed that all six events generated the expected positive or negative returns, and among them, four were statistically significant. Changes in systematic risk reflected the reaction of the stock market to the verdict announcements. Programs designed for habitat conservation can be implemented to compensate private landowners or firms for costs associated with protecting species on private forestlands.     

Pressler's indicator rate formula as a guide for forest management

In this paper, it is shown that Pressler's indicator rate formula is also the optimal condition for the determination of the optimal harvest age under the generalized Faustmann formula. In addition, a modern treatment of the quantity increment, quality increment, and price increment is presented. Pressler's indicator rate formula is then applied to determine the optimal harvest age in a dynamic world of unanticipated changes.     

Optimal rotation with declining discount rate

In recent years it has been argued, from many perspectives, that the further into the future a value flow occurs, the lower is the appropriate discount rate for it. National governments are now beginning to authorise such declining discount rates. This viewpoint can be, and has been, formalised in various ways, and has been applied to evaluating forestry investments of given durations. When the optimal duration of investment is itself the issue, new problems arise. Lower discount rates make subsequent rotations longer than earlier ones, and for a given length more valuable than they would otherwise be. This affects the optimal length of earlier rotations, which in turn may affect the discount rate profile applicable to later ones. In the absence of analytical solutions for the optimal sequence of rotations, numerical protocols are needed. The results arising are mostly in accord with expectations. If the change of discount rate is due to expected changes of circumstance that are actually realised, then the optimal sequence of rotations will remain as initially determined. If, however, it is due merely to the particular time perspective of the present generation, rotations will be revised by future generations. This will lead to a sequence of rotations similar to that deemed optimal at the current short-term discount rate. The most important reductions in profitability caused by choosing the “wrong” discounting protocol arise from the “wrong” rate, rather than by using declining rates as such.     

The multiple effects of carbon values on optimal rotation

Non-consumptive benefits which increase with crop age, like keeping carbon sequestered, lengthen optimal rotation compared with rotation for timber alone. High proposed carbon prices may extend rotation indefinitely. Carbon storage in wood products reduces this tendency. Biomass as an energy source displacing fossil fuels favours rotations near those of maximum biomass productivity. Use of sawn timber to displace structural materials with high embodied carbon favours somewhat longer rotations. Effects of rotation on soil carbon, and fossil carbon volatilised in harvesting operations, are further complications. Including all carbon effects results in optimal rotations somewhat longer than those based only on timber value, but shorter than those based on timber plus forest carbon. To include all factors intuitively is not possible: balanced appraisal needs economic calculations.     

Assessing forest management strategies using a contingent valuation approach and advanced visualisation techniques: A Portuguese case study

The assessment of alternative forest management strategies should account not only for the private benefits to forest landowners but also for the ecological, environmental and economic benefits valued by society. There are a number of empirical valuation methods that may contribute to that assessment. These methods involve several steps: data acquisition, model specification and estimation. In this paper, this approach is illustrated in the context of a survey regarding alternative management strategies for a forest area in Central Portugal by implementing a contingent valuation experiment where an advanced landscape visualisation technique is employed to generate the visual information conveyed in the valuation scenarios. Several econometric model specifications are considered as well as alternative approaches to handle zero willingness to pay values and protest responses. The results obtained suggest the potential of the proposed approach for an effective comparison of alternative forest management strategies.     

Rewarding carbon sequestration in South-Western French forests: A costly operation?

The extension of rotation lengths in forests has been proposed as an option for increasing carbon storage and contributing to climate change mitigation. This paper presents the results of a case study conducted on forests located in the southwest of France. The aim of this research was to assess the cost effectiveness of a subsidy/tax system on carbon fluxes. First, it is shown that such a mechanism leads forest owners to extend rotation lengths. However, cost effectiveness analysis shows that: (1) marginal social costs are more expensive than the private marginal costs of carbon sequestration; (2) marginal costs are higher when carbon stocks are discounted, ranging from 170.1 €/tC to 719.8 €/tC with discounted carbon stocks; and from 38.8 €/tC to 78.4 €/tC with undiscounted carbon stocks; (3) marginal costs are in the range of measures of the social value of carbon for France; (4) marginal costs increase with timber prices and increase with discount rate.     

Human behavior and the use of experiments to understand the agricultural,resource, and environmental challenges of the XXI century

The use of laboratory¹ experiments in economics, and their later deployment in the field as a tool for exploring how actual decision‐makers respond to information, incentives or institutions has brought a revolution to how we model economic systems, and design policies for them. This new century will bring challenges for the study of agriculture, natural resources and the environment, where it will be necessary to have a better understanding of human behavior, in a world where climate on the one hand, and land, labor and food markets are ever more unstable. This article reviews the intellectual history of a rich dialogue between theory and experiments with a particular focus on its relevance for agricultural, resource and environmental issues. Special attention will be given to the case of common‐pool resources where this dialogue between models, field work and laboratory experiments continues to provide a rich cross‐fertilization for the advance in the understanding of the economic systems that governs these resources. I will close by arguing that agricultural, environmental and resource economists will have to take part of this behavioral revolution by embracing experiments in their teaching, their research and their policy design.     

The estimated ex ante economic impact of Bt cowpea in Niger,Benin and Northern Nigeria

Genetically modified (GM) crops could increase economic growth and enhance living standards in Africa, but political issues have slowed the use of biotechnology. This is the first study that assesses the potential impact of GM crops in Africa while considering the preferences of producers and consumers towards GMOs as well as the income and price risks they face. The study uses a choice experiment to estimate the ex ante economic impact of a novel technology, Bacillus thuringiensis (Bt) cowpea, on producers and consumers in Benin, Niger and northern Nigeria. The experiment involves the simulation of a market transaction similar to those in open air markets in West Africa. During the market simulation, respondents are informed about the advantages and disadvantages, including health risks, of Bt cowpea. The results from the study suggest that cowpea growers and consumers in Benin and northern Nigeria prefer Bt to conventional cowpea for health safety reasons. The results estimate that social welfare in Benin, Niger and northern Nigeria would increase by at least US$11.82 per capita annually with Bt cowpea, if seed sectors are operating smoothly. With inefficiencies in seed sectors and the potential for cowpea acreage increase, the estimated social welfare increase in the region would be about US$1.26 per capita annually.