Forest Resources Wednesday, April 5

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

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

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

Age of trees Volume Average Volume Annual Increase

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

Using Field’s Notation: V 0 : value of the wood that would result if harvested this year (p x q 0 ). V 0 : value of the wood that would result if harvested this year (p x q 0 ). V 1 : value of the wood that would result if harvest is delayed one year (p x q 1 ). V 1 : value of the wood that would result if harvest is delayed one year (p x q 1 ). ΔV: V 1 - V 0 or the change in value between the two years (what you lose if you cut in year 0) ΔV: V 1 - V 0 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) C: cost of harvest (c x q) r: discount rate r: discount rate S: PV of all future net benefits (all future timber harvests with efficient management or other known uses) S: PV of all future net benefits (all future timber harvests with efficient management or other known uses)

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

The Simple Model

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

For Monday, Read Field Chapter 12, Forest Economics