Question

New Zealand’s private forests In the early 1990s, the government auctioned half the national forests, converting these forests from public ownership to private ownership. The government’s decision was an incentive to get the owners to operate like farmers—that is, take care of the resource and to use it to make a profit. Source: Reuters, September 7, 2007 Was the timber industry efficient before the auction and did logging companies operate in the social interest or self-interest? What effect has private ownership had on efficiency of the timber industry? (34 points)

Answer 1

The New Zealand timber The forestry and wood industry is New Zealand’s third largest industry, contributing an enormous amount to our economy and making up over 12% of New Zealand’s export earnings.

Public interest change and the environment has never been higher which makes it a great time to highlight to all New Zealanders benefits of growing forests and using wood.  

So now I want to explain about the forest is owned by the government, and the government faces different incentives faced by private owners.

Logging companies that operate out of self-interest have the incentive to cut as much wood as possible economically in order to maximize profits.

They have incentive to protect any particular forest, because if the forest dries up, they can switch to another forest.

when logging companies negotiate how much wood to be harvested and how much they must pay for the felled wood, private owners have an incentive to limit the amount harvested to ensure that there will be wood harvested in the future so that the owner can profit now and in the future.

However, for government ownership, there will not be the same incentive mechanism, because the government will not try to ensure its future profitability.

Logging companies may be able to persuade government officials to provide more resources than effective logging, so when the government owns the forest, the forest may be over-logged.

Since the auction, New Zealand's timber industry is likely to perform well.

Private forest owners are encouraged to limit the scope of logging so that the owner can sell their logging rights in the future.

Through the creation of such institutions, the functioning of forest enterprises is in accordance with their own interests, which are the same as social interests.

Hope you understood