Forest Resources Monday, April 4

Characteristics of a Forest Resource Renewable Slow growth Replant Self-regenerate Life cycle External benefits Storable

Forestry Property Rights For private land owner, right to cut trees is one of the sticks in the bundle of rights Publicly owned forest land Federal and state (20% of land area – 7.5 million acres) Federal and state programs of multiple use Private harvest on public land

Biological Model Total volume of wood by age of forest Years Volume of wood (cu ft) Years

Age of trees Volume Average Volume Annual Increase 10 80 8 20 200 12 30 400 13.3 40 720 18 32 50 1360 27.2 44 60 1660 26.3 70 1840 24.5 1960 22.7 90 2040 20.9 100 2090 19 5 110 17.4 120 14.9

Harvesting Decision Rules Biological When average volume is at maximum Economic When marginal benefit of one more year just equals the marginal cost of one more year.

Using Field’s Notation: V0: value of the wood that would result if harvested this year (p x q0). V1: value of the wood that would result if harvest is delayed one year (p x q1). ΔV: V1- V0 or the change in value between the two years (what you lose if you cut in year 0) C: cost of harvest (c x q) r: discount rate S: PV of all future net benefits (all future timber harvests with efficient management or other known uses)

(MC = MB) Proceeds if harvested this year (Marginal benefit of harvesting now) Proceeds if harvested next year (Marginal cost of harvesting now) (MC = MB)

The Simple Model

For simple model (no future), changing harvest costs does not change optimal time of harvest: Present value of net value, r=.02, when harvest costs are .30/cu ft, .40/cu ft, and .50/cu ft.