1. Upcoming in Class Homework #9 Thursday Quiz #4 Group Outline due today
Exam #4 Dec. 1
Group Presentations Dec. 6 & 8.

2. Model of Tree Growth in a Stand of Douglas Fir
Hypothetical follow the shape suggested by the biologist. We can use this to determine the efficient age to harvest the trees.
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3. Timber Revenues and Costs Over Time

4. Optimum Harvest Period with Discounting

5. When should the stand be harvested?
How do an increase in the following affect the optimal harvest age?
Planting costs
Harvesting costs
Per-unit tax on harvesting
Planting costs do not vary with the age of the tree, so the MC associated with planting cost is zero.
Harvesting cost are proportional to the amount of timber harvested and are constant with age.

6. Extending the Single-Model to Optimal Rotation over Time
Interdependences
Applying single-harvest model may not be so simple
Single-harvest model, harvest when marginal benefit of an additional year’s growth = marginal opportunity cost of capital
Infinite-planning model, you examine the optimal length of harvest and replanting (“Optimal Rotation”).
Length of each period affects the benefits in the next period
The opportunity cost of delay is the benefit from the next best alternative (harvesting and replanting).

7. Single-Harvest Model vs. Infinite-Planning Model
All else constant, the optimal rotation in the infinite-planning case is shorter than in the single-harvest case.
The marginal cost of delay is higher since there is now an opportunity cost of starting the next cycle later. Thus, the optimal rotation is shorter.

8. Problem
Suppose there are two identical forest plots except that one will be harvested and left while the second will be cleared after the harvest and turned into a housing development. In terms of efficiency, which one should have the oldest harvest age? Why?

9. Marginal Opportunity Cost of Delay
Opportunity costs are the forgone benefits from the next best alternative
Marginal cost of delay is the forgone benefits from harvesting and replanting for the next period.
The net benefits in the next period depend on the planting costs and the harvesting cost.
For example, what is the opportunity cost of leaving your model in the a particular stock in the market… the next best alternative, you could take it out and invest it in a house or a different stock.

10. Optimal Rotation
Occurs when the marginal cost of delay equals the marginal benefit of delay.
How do an increase in the following affect the optimal rotation age?
Planting costs
Harvesting costs
Per-unit tax on harvesting
MC- benefits from future period (constant to keep things simple)
MB-benefits from additional year of growth. (draw MB curve increasing than decreasing)

11. Sources of Inefficiency that Encourage Deforestation
The value of a standing forest as wildlife habitat or ecosystem function is an external cost. Failure to recognize social values will result in inefficiencies.
External costs of timber harvesting may not be adequately considered by the private landowner.
Deforestation involves transboundary or global externalities.
Biodiversity: deforestation is a major source of species loss. Many benefits of species preservation are external to the country with the forest. (Biodiversity vs. genetic diversity)
Climate change: deforestation contributes to climate change, but the benefits of leaving the trees standing are largely external. The costs, however, are largely internal.
Elaborate on biodiversity involves 1) the amount of genetic diversity among a single species 2) the number of species available.
genetic diversity has proven to be important in developing new crops and drugs and livestock because it enhances the opportunities for crossbreeding.

12. Sources of Inefficiency that Encourage Deforestation
Government policies can also create perverse incentives
Brazil government gave agricultural tax-break
Government resettlement programs have also encouraged deforestation by facilitating the movement of migrants into agriculture.
Squatter rights encourage deforestation
Allpahuayo-Mishana National Reserve in the Peruvian Amazon
Market conditions can encourage the transition from forests to agriculture
Elaborate on brazil, squatter rights, peru, and market conditions