Question

1) Explain clearly the difference between biological and economic harvesting decision rules for a forest. How would a change in the discount rate affect the optimal length of rotation, and why? How would an increase in the cost of harvesting a forest affect the optimal length of rotation, and why? How would the presence of external benefits affect the optimal length of rotation, and why?

please make it clear and put it into points it so i can understand
THANKS

Answer 1

Answer:-

The biological component of the model describes the growth of the volume of any product from Forest over time on a hectare of forest land. The economic component of the model places dollar values on the output of forested land under alternative patterns of use. These values are obtained by subtracting the cost of a particular use from the market value of the good or service produced. As noted above, some uses, such as recreation, occur more or less continuously, whereas logging occurs intermittently. The values of alternative uses of the forest can be assessed by comparing the present values of alternative flows of goods and services - the site value under alternative uses - or by converting site values to constant annual rental values for comparison.

Two approaches are commonly used to determine the optimal rotation length. The first is the maximum sustained yield (MSY), which is determined mainly by ecological processes, and will only give the economically optimal rotation under very restrictive economic conditions (Samuelson 1976). The MSY method defines the optimal rotation length as the age that maximises the timber production per unit of land (Amacher et al. 2009). The second method merges economics and ecology and was introduced in 1849 by the German forester, Martin Faustmann, who derived the optimal rotation length using the principles of discounting (Faustmann 1849). Faustmann considered a forest as a long-term capital asset and thus the optimal rotation length could be determined by maximising the net present value (NPV) of the land.

Faustmann formula found that the risk of an abiotic event increased the effective discount rate so that the forest perceives a higher opportunity cost of not harvesting, and thus shortens the optimal rotation length and vice versa.

Faustmann optimal rotation length model, to explore the management decision of when to harvest a single rotation, even-aged, plantation forest under varying disease conditions. Sensitivity analysis of the rate of spread of infection and the effect of disease on the timber value reveals a key trade-off between waiting for the timber to grow and the infection spreading further. We show that the optimal rotation length, which maximises the net present value of the forest, is reduced when timber from infected trees has no value; but when the infection spreads quickly, and the value of timber from infected trees is non-zero, it can be optimal to wait until the disease-free optimal rotation length to harvest.

Hartley introduces three types of non-timber benefits to the optimal rotation calculation: soil erosion prevention; aesthetic value; tourism value; and existence value. The values of the soil erosion and tourism benefits are assumed to be unrelated to the age of the stand of trees, whereas the aesthetic value is assumed to increase with the volume of timber, and the existence value with the age of the stand. Hartley cautions that these types of benefits represent only a fraction of the actual number of positive externalities generated by old growth forests