Recent Accomplishments in Applied Forest Economics Research

246 Pages·2003·7.01 MB·English

by  Colin Price (auth.)

RECENT ACCOMPLISHMENTS IN
APPLIED FOREST ECONOMICS RESEARCH
FORESTRY SCIENCES
Volume74
The titles published in this series are listed at the end of this volume.
Recent Accomplishments in
Applied Forest Economics
Research
edited by
F. Helles
The Royal Veterinary and Agricultural University,
Department ofE conomics and Natural Resources,
Copenhagen, Denmark
N. Strange
The Royal Veterinary and Agricultural University,
Department ofE conomics and Natural Resources,
Copenhagen, Denmark
and
L. Wichmann
The Royal Veterinary and Agricultural University,
Department ofE conomics and Natural Resources,
Copenhagen, Denmark
....
'
SPRINGER-SCIENCE+BUSINESS MEDIA, B.V.
A c.I.P. Catalogue record for this book is available from the Library of Congress.
ISBN 978-90-481-6221-5 ISBN 978-94-017-0279-9 (eBook)
DOI 10.1007/978-94-017-0279-9
Printed an acid-free paper
AlI Rights Reserved
© 2003 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 2003
Softcover reprint of the hardcover 1s t edition 2003
N o par! of this work may be reproduced, stored in a retrieval system, or transmitted
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Foreword
The papers in this book were 'in a preliminary version' presented at an international con
ference May 21-25, 2002 in Gilleleje, Denmark. It was a joint event, namely the biennial
meeting of the Scandinavian Society of Forest Economics and the 3rd Berkeley-KVL Con
ference.
The Scandinavian Society of Forest Economics (SSFE) was established in 1958 as a
forum for forest economists in the Nordic countries to meet and exchange ideas on research
and education. Alternating between Denmark, Finland, Norway and Sweden, biennial
ordinary meetings have taken place ever since. The number of participants has increased
from 10-15 in the first decade to more than 80 in 2002. In the last two decades prominent
researchers from outside Scandinavia have been invited to present papers at the biennial
meetings and also to participate in ad hoc working groups.
The Berkeley-KVL part of the conference is based on a research collaboration between
The Royal Veterinary and Agricultural University (KVL), Copenhagen, University of Cali
fornia at Berkeley, and Oregon State University. It was initiated in 1993 within the frame
work of a research programme at KVL: 'Stochastic Decision Analysis in Forest Manage
ment' and since 1996 extended to the programme 'Economic Optimisation of Multiple-Use
Forestry and Other Natural Resources'.
Participants in the conference were given the option to have their paper published in the
SSFE proceedings or submit it for publication in a potential edited volume, after selection
and peer reviewing. The outcome is the present book in which no paper has been previously
published.
The editors express their sincere appreciations to Samnordisk Skogsforskning and The
Danish Agricultural and Veterinary Research Council for indispensable financial support
to the conference. We also thank the authors who took on the extra work needed for such
publication, and the reviewers who accepted to accomplish the task fast and efficiently.
Copenhagen, October 2002
Finn Helles Niels Strange Lars Wichmann
v
Preface
Finn Helles, Niels Strange and Lars Wichmann
The papers in this book deal with applied forest economics. With regard to topics it is
a heterogeneous book- even within each of its three parts: Resources, Industry, Markets,
the topics differ. It demonstrates recent accomplishments within the broad discipline of
modern forest economics, applied on a wide spectrum of problems using many different
approaches.
The book does not pretend to show the entire state-of-the-art in forest economics, but
nonetheless it is claimed to illustrate many recent accomplishments.
Part I: Resources starts with a paper by Colin Price who demonstrates that the
world-wide trend towards 'near-nature forestry' may not be as self-evidently advantageous
as is usually claimed by the public, politicians and even forestry professionals. The eco
nomics of transformation from even-aged to uneven-aged (continuous cover) forestry is
examined on the basis of Douglas fir in Wales. It appears that economic justifications
such as improving profitability, or gaining early, well-distributed or flexible revenue are
spurious, and that environmental advantages are equivocal. Suggestions are offered as to
the choice of locations for continuous cover forestry in Wales - the arguments may well
be applicable to other geographical locations. Guillermo A. Navarro scrutinises the theo
retical problems affecting calculation of the land capital asset value in forestry, i.e. using
the land expectation value (LEV) formula. Three different basic LEV formulas are iden
tified in the forest economics literature, the topic having been debated for close to 200
years. The paper will hardly bring the debate to an end, but it is elucidated that much
disagreement is due to different and often unclear assumptions, and criteria are presented
for improving the application of the three LEV formulas. Richard J. Brazee also deals
with the Faustmann formula or model, but shows that the 'Volvo Theorem' provides an
alternative model of optimal timber harvesting. Instead of choosing to harvest at the age
that maximises net present value, under the Volvo Theorem landowners harvest when faced
with a non-forestry expense such as the purchase of a new Volvo. A simplified model is
used to describe behaviour when a landowner faces differential interest rates depending on
asset position. And an assessment is made of the Volvo Theorem as an alternative to the
Faustmann model. Henrik Meilby, Bo J. Thorsen and Niels Strange apply Monte Carlo
simulation to evaluate the consequences of an adaptive optimisation approach to spatial
harvest planning under risk of windthrow. Such strategy is demonstrated to have the dou
ble advantage of (i) producing realistic solutions that imitate the adaptive behaviour of
the forest manager, and (ii) producing realistic solutions that circumvent the tremendous
combinatorial dimensions of the topical stochastic interaction problem. Stale St¢rdal and
Sjur Baardsen perform an econometric analysis of Norwegian microlevel timber harvesting
data, demonstrating significant differences in stumpage values over regions with respect to
both the characteristics of the timber and the valuation of the different grades. The paper
provides a framework for analysing individual harvests by regions, season and size that de
composes differences between regions. If the findings can be generalised, moderate rather
than large-scale harvests should have minimal impact on the economy of a particular har
vest - an interesting result, e.g. from the point of view that small clear-cuts are often more
environmental friendly than large. Bo J. Thorsen and Nikolaj Malchow-M¢ller extend the
vii
field of real-options theory. Instead of considering land-use decisions under uncertainty as
a problem of replacing an existing land use with one alternative use, the paper analyses the
problem of decision-makers having more than one investment option available, and by exer
cising any of them, they sacrifice all other options. A simple two-period model is presented,
a continuous-time model outlined and results given of a numerical solution procedure for
the case of afforestation. Signe Anthon applies the hedonic pricing method and data from
two residential areas in Denmark to calculate willingness-to-pay (WTP) measures for two
afforestation areas. Modelling the environmental attribute with the continuous variable
'distance' is likely to be the best representation of the marginal values that proximity to
an afforestation area has in the two cases, and it is concluded that there is a positive WTP
for afforestation projects in both cases. Niels Stmnge, Vilis Brukas, Finn Helles and Peter
Tarp analyse the performance of several optimisation models, using genetic algorithms,
simulated annealing, and mixed integer programming, when applied to the multi-criteria
problem of delineating conservation areas in a case forest in Lithuania. The study indicates
that mixed integer programming is relatively time-inefficient for complex problems that
involve a large number of sites and consider spatial connectivity. Peter Bogetoft and Kurt
Nielsen discuss the pros and cons of using Data Envelopment Analysis (DEA) to evaluate
and enhance the efficiency of natural resource management. The DEA modelling is particu
larly useful in a natural resource setting because of its ability to handle multiple inputs and
outputs, to work with flexible production structure, to incorporate local variables, and to
work with limited or no preference information. Moreover, the need in DEA for good data
from several similar units is often possible to fulfil. The DEA approach can also be useful to
cope with delegated production and incentive problems. Some basic results on DEA based
incentive schemes are reviewed. These schemes can be used in motivating landowners to
take desired decisions. It is indicated how a DEA based procurement procedure could be
used to select farmers and forest owners for a programme, e.g. to enhance environmental
qualities. The authors believe that developments along the lines of the DEA based auctions
may lead to new approaches that can solve real problems using sound theory.
Part II: Industry. Sjur Baardsen estimates input demand, output supply, returns
to scale, and technical change in Norwegian sawmills, employing a flexible, restricted and
normalised translog profit function on observations for 1974-1991. Focus is on the estima
tion of the profit function, on the derived elasticities and on aggregation issues rather than
on possible implications for policy. Matti Flinkman analyses the use of sawnwood within
six end-use sectors and nine related producer sectors involved in the West German wood
supply chain for construction. The time-series cover the period 1970-2000 and is used for
econometric analysis and forecasting the wood use within the subsectors. By aggregation
over the subsectors, a projection for the total consumption of sawnwood in construction is
derived. Lars Lonnstedt investigates, on the basis of six cases in the Swedish forest sector,
arguments for and against backward vertical integration, i.e. integration from pulp- or
sawmills to timberland ownership. The results give strong support for the transaction cost
theory. Backward vertical integration of the forest industry may be explained, not least for
the pulp and paper industry, by transaction specific capital, i.e. high quasi rents.
Part Ill: Markets. Mikael Linden and Jussi Leppanen investigate, on the basis of
Finnish regional data 1983-2000, the impact of government investment assistance on forest
investment and timber supply. It is argued that the private forest owner has a low incentive
for self-financed forest investment due to low forest capital return and postponed consump
tion. It is shown in a theoretical model that government cost sharing (loans and grants) has
positive timber supply and investment effects. Peter Berek and Sandm Hofmann consider
different methods and issues in estimating employment changes from preservation of forests
and other natural lands in California. The conclusion is that job multipliers exist, but are
surprisingly difficult to pin down. Different simulation and time series methods result in dif
ferent empirical estimates for job multipliers. James Turner and Joseph Buongiorno review
differences between the concepts and information used in current global forest sector mod-
viii
els. The need for such models is stressed; however, there are few models with sufficiently
detailed coverage to answer specific questions. Adequate representation of timber supply is
a particular weakness of existing global forest sector models. Anders Baudin investigates
inventory and price movements of coniferous sawnwood in Europe (Sweden, the UK, Ger
many). A method is shown by which an indicator of consumer inventory change can be
obtained. It is also shown that dynamic models can be specified and estimated for the re
lationship among price and inventory variables. Ritva Toivonen and Eric Hansen examine
quality dimensions of wood products as perceived by German organisational customers, and
compare wood and other construction materials with respect to those dimensions. Product
quality appears to take somewhat different dimensions regarding different products. Prod
uct information and perceived quality are found to be separable dimensions. Particularly
with regard to wood, environmental considerations did not seem to form a separate quality
dimension. Using Nepal as case country, Carsten Smith Olsen and Thorsten Treue inves
tigate the commercial trade in the medicinal plant product "chirait", mainly consisting of
the herb Swertia chirayita, and show that this is an important income generating product
for rural households. It is emphasised, however, that before medicinal plants can be used
in longer term larger scale attacks on poverty in the Himalayan region, it is important to
establish harvest rates and to ensure that national policies, legislation and administration
support such initiatives.
ix
Contents
Foreword v
Preface vii
I Resources 1
The economics of transformation from even-aged to uneven-aged forestry
Colin Price ............................ . 3
Re-examining the theories supporting the so-called Faustmann formula
Guillermo A. Navarro ...................... . 19
The Volvo Theorem: From myth tobehavior model
Richard J. Brazee 39
Adaptive spatial harvest planning under risk of windthrow
Henrik Meilby, Bo J. Thorsen and Niels Strange ... 49
An econometric analysis of differences instumpage values using micro-levelharvesting data
Stale St0rdal and Sjur Baardsen . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Afforestation as a real option: Choosing among options
Bo J. Thorsen and Nikolaj Malchow-M¢ller ... 73
The value of urban afforestation:A hedonic pricing case
Signe Anthon . . . . . . . . . . . . . . . . . . . 81
Comparison of multi-criteria optimisation techniques for selection of conservationareas
Niels Strange, Vilis Brukas, Finn Helles and Peter Tarp . . . . . . . . . . . . . . 91
DEA based yardstick competition in natural resource management
Peter Bogetoft and Kurt Nielsen . . . . . . . . . . . . . . . 103
II Industry 127
A multi-output restricted profit function for Norwegian sawmilling
Sjur Baardsen 129
The use of sawnwood withinthe end-use and producer sectorsin former West Germany
Matti Flinkman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Backward vertical integration in the Swedish forest sector -six case studies
Lars Li:innstedt , . . . , . . . . . . . . . . . . . . . . . . . . . . . . 153
III Markets 165
The impact of government investmentassistance on forest investment and timber supply
Mikael Linden and Jussi Leppanen . . . . . . . . . . . . . . . . . . . . . . . . . 167
Preservation and employment
Peter Berek and Sandra Hoffmann 181
Issues and prospects in global forest sector modeling
James Thrner and Jospeh Buongiorno .. 193
xi
Inventory and price movements ofconiferous sawnwood in Europe
Anders Baudin 207
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Quality dimensions of wood products -perceptions of German organisationalcustomers
Ritva Toivonen and Eric Hansen 219
o o 0 o o
Analysis oftradein non-timber forest products
Carsten Smith Olsen and Thorsten Treue 227
List of Authors 241
xii