AGEC/FNR 406 LECTURE year old Loblolly Pine plantation

Forests - characteristics 1. Renewable 2. Interactive 3. Common, private, or public property 4. Benefits include: Private goods Public goods

Economic Analysis Same principles as fishery: Efficiency achieved where MC = MB IF…p roperty rights are structured to allow markets to capture ALL costs & benefits (including social) This assumption is rarely met. TR = P * Q Q determined from growth function Price determined by market for some outputs

Growth Function (logistic) output (Q) = wood input (X) = time (waiting)

MP and AP - definitions Marginal Product (MP) periodic annual increment (PAI) marginal change in volume =  Q/  X Average Product (AP) mean annual increment (MAI) total volume/total input = Q/X (If managing for perpetual physical volume only, then find maximum MAI)

Growth: output as a function of time

Rotation length - definition Period of time a given area of timber (stand or individual tree) is held, i.e. time between planting or natural regeneration, and harvesting

Sequence of timber rotations (R t ) from given tract of land Time line Harvest R 1 Harvest & plant Plant R 2 R1R1 R2R2 RnRn Plant R 1 Plant R 3 Harvest R 2

Optimal rotation varies by owner category Households - utility maximizers Forest products firms - profit maximizers Public - multiple uses, utility maximizers Single age/species stand vs. multiage, multispecies stand – very different analysis required.

Rotation based on physical product only – two choices 1. Choose rotation length to maximize volume over one rotation: optimal length where Q is at maximum 2. Choose rotation to maximize volume in perpetuity: optimal length is where MAI is at its maximum (see Table11.2 in text, referred to as culmination of MAI)

Economic efficiency criteria 1. Static efficiency Maximize net benefits of one optimal rotation 2. Dynamic efficiency Maximize net benefits from continuous series of rotations, where the net benefits from future rotations are discounted back to present value terms.

Key economic insight: net benefits are maximized where NB is maximized, i.e. where TB - TC is greatest where MC = MB (same thing!) Economic criteria: maximize net benefit (static) maximize present value of NB (dynamic)