Transcript

Forest and Conservation Economics-FRST 318

Harry NelsonDept of Forest Resources Mgt.

Harry Nelson 2012

What do we study in Economics? There are three basic questions societies

ask:1. What to produce?2. How to produce the desired product mix?3. How to distribute production?

Economics helps us understand how this is organized

Positive analysis and normative analysis

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Why does Economics get a bad rap? Basic Concepts you learn in introductory

courses: There’s not enough to go around & you have

to make choices (Scarcity) Those choices involve tradeoffs (Opportunity

cost) Markets are the optimal way to organize all

of our economic interactions (competitive markets maximize social welfare)

Everything has a monetary value

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Rethinking Economics

Economics historically was a branch of moral philosophy and based on logic

I prefer to think of it as making a reasoned case-drawing on a wealth of empirical observations and experience

Provides a useful set of concepts that can be used to understand these economic systems we’ve created and analyze the interaction between the different components and the way we make decisions within this framework

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Goal of the CourseUnderstanding of the basic principles

and conceptsTeach you how to apply those concepts

to develop an analytic structure to investigate different types of problems and issues

An understanding of the tools you can use

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Problem SolvingBusiness Economics Investment decisions Production levels Risk management

Conservation Economics

Protecting environmental values

Risk management

Firm profitability Net present value

and IRR

Cost benefit analysis Non-market

valuation

Tools for running acompany

Tools for makingpolicy decisions

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Policy Decisions What kind of silvicultural investments should

we make? How much forest area should be conserved

or protected? Does AAC promote sustainability? Is bio-energy a good idea?

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What’s special about Conservation and Forestry Economics?

The realities of forest and ecosystems challenge many of the assumptions used to build basic economic models Many valuable but unpriced outputs Pervasive externalities

The challenges of managing complex systems multiple outputs and at different scales

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What Should Our Objectives be?

We should produce goods and services in the most efficient way possible (we don’t waste) Economic efficiency

Those goods should go to those that value them the most Social efficiency

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Market Equilibrium and Social Welfare

ProducerSurplus

ConsumerSurplus

P

Q

p*

q*

D

S

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Market Equilibrium

Consumers needs are met at lowest price possible

Consumers are maximizing their satisfaction

Capital is allocated efficiently

Labor and other resources are allocated efficiently

Producers seek efficient levels of output

Land is allocated efficiently

There is no redistribution of income that will result in an increase in net benefits

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The Assumptions required for markets to yield social optimum

Firms and consumers are rational maximizers

Efficient property rights

Perfect competition

Free entry Perfect

information

Mobile labour and capital

No externalities Priced inputs and

outputs Satisfactory

income distribution

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Mathematical Expression MSB=MSC

MRP=MFC

VMP=MRP

MFC=VMF

Marginal Social Benefit = Marginal Social Cost

Marginal Revenue Product = Marginal Factor Cost

Market value of marginal product=marginal revenue product

Marginal Factor Cost=Value Marginal Factor

Setting the stage

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P

Q

p*

q*

D

S

q1 q2

Consumer Surplus

Producer Surplus

Inefficiency – Too Little Production

Deadweight Loss

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P

Q

p*

q*

D

S

q1 q2

Consumer Surplus

Producer Surplus

Inefficiency –too much production

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Opportunity Cost The value of the best alternative use of

a resource In essence, opportunity costs, and their

proper consideration in decision making, should allow us to ensure that resources are directed to their best possible use.

When markets work perfectly, prices accurately reflect opportunity costs and market does it for us automatically

But when prices don’t reflect true costs, then the analysis has to take those into account to accurately calculate net gains to society

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Equity The distribution of

wealth and income is important too Can be intra-

personal Can be inter-

regional Can be inter-

generational

Governments can intervene to re-distribute wealth and income Can do it directly Can do it indirectly

Often a tradeoff between equity and efficiency (log exports; appurtenancy)

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World Forests country data (2010)

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Forest Area 000 ha % of world

Russia 809,090 20.1%

Brazil 519,522 12.9%

Canada 244,571 6.3%

USA 304,022 7.5%

China 206,861 5.1%

Indonesia 94,432 2.3%

Sweden 28,203 0.7%

Finland 22,157 0.5%

Malaysia 20,456 0.5%

Chile 16,231 0.4%

NZ 8,269 0.2%

Canada 310,134 7.7%

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Forest Use

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Expenditures exceed revenues in many countries

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What is harvested (2005)Harvest of 3.2 billion m3/yr in 2005 (flat over last 10 years)

Subsistence (45.2%) vs Industrial (54.8%)

Coniferous (1/3) vs Non-coniferous (2/3)

Missing data due to illegal, underreported, and unreported logging estimated at 10-25% of total.

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Public Land Modelpercent of forest land owned by government

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Drivers of Change Demand shifts-change from forests as source

of forest products to forest values Biodiversity Carbon sequestration Recreation and aesthetic benefit Provision of clean water

Supply shifts-emergence of plantations Canada is unique in how much of its harvest

comes from natural forests

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Drivers of change in ecosystem services(Millennium Ecosystem Assessment, 2005)

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Observed trends in

floods and wildfires

(Millennium Ecosystem

Assessment, 2005)

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And a future with more surprises….

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For this week… Read Chapters 1, 2 & 3 in Pearse http://resolve.library.ubc.ca/cgi-bin/catse

arch?bid=3922064 In labs following in-lab assignment we will

carry out review Upcoming

Guest lecture Tuesday the 17th (Mark Boyland, CFS)


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