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?

Answer 1

When all the industries where owned by government, the New Zealand timber industry was inefficient and logging companies operated in their self interest.

They were producing over the economical amount. Marginal social cost exceeded marginal social benefit.

The logging companies weren't considering all of the prices of the production, as a result they failed to own the land on that they were operating.

They had no incentive to preserve the forest land nor to cut the timber in a very manner that may create future gather of trees profitable.

Under private ownership, the New Zealand timber industry has been efficient. Logging companies have operated in social interest and in their self interest.

Since the early 90's, the logging companies are in operation in self interest and therefore the social interest. They are producing the economical amount.

Marginal cost = Marginal benefit as ila result of the private forest owners charge the logging companies for the employment of the land. Thus the logging companies currently should think about all of the prices of manufacturing.

The private forest owners have associate incentive to preserve the forestland and to create timber industries to behave in a very manner that may make future harvesting of trees profitable.