The International Yearbook of Environmental and Resource Economics 2006/2007

The International Yearbook of Environmental and Resource Economics 2006/2007

A Survey of Current Issues

New Horizons in Environmental Economics series

Edited by Tom Tietenberg and Henk Folmer

This major annual publication presents a comprehensive overview of cutting-edge issues in environmental and resource economics.

Chapter 6: The Faustmann Face of Optimal Forest Harvesting

Richard J. Brazee

Subjects: economics and finance, environmental economics, environment, environmental economics


Richard J. Brazee* 1. INTRODUCTION Forests are important natural resources in countries and regions of the world. Forests cover approximately 30 percent of the earth’s land area (FAO 2000). Without human interventions forests would be shaped solely by natural elements including the sun, climate, soil nutrients, topography, weather and fires. Using primarily vegetative manipulations including harvesting, planting, thinning and burning, humans manage forests to meet personal and social objectives. Given the key role of vegetative manipulation, the fundamental question of forestry economics is: when should a tree or a stand of trees be harvested? Answers range from immediate harvest to never harvest. Important specific harvesting questions include: 1 2 3 When should a stand of trees1 be harvested? Should deforestation rates in the Amazon be slowed? Is profit maximization consistent with sustainable harvesting? A secondary long-standing question is: how can small private landowners be encouraged to more actively manage their forests? The proportion of forest land held by small private owners ranges across countries from virtually none to virtually all. Correspondingly the importance of encouraging small private landowners to actively manage their forests ranges from irrelevant to crucial (Kuuluvainen et al. 1996). The goal of this chapter is to provide a modeling introduction to optimal forest harvesting for economists. A single model, the Faustmann model, serves as foundation for a simple introduction to optimal harvesting (Faustmann 1849 [1995]). The Faustmann model is sufficient to span much of the current range of optimal harvesting analysis. Specifically, the...

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