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   Course Title    Forestry Economics
Lecturer    Yuri Blam
Institution    Novosibirsk State University
Country    Russia


1. Forestry's Economic Perspective

Approaching Forestry from an Economic Viewpoint. Forests as Economic Resources. Forestry as Applied Science and Applied Economics. Economic Decision - Making.

REVIEW QUESTIONS

1) Explain why economics is concerned only with the allocation of "scarce" resources. In what sense are forest resources "scarce"?

2) Compare how management decisions are made for (a) a privately owned forest in a capitalistic economy, (b) a government-owned forest in a planned socialistic economy, and (c) a tribal forest in a primitive subsistence economy.

3) Explain how innovations in mechanized forestry can affect (a) economic efficiency in timber production, and (b) the distribution of income.

4) Describe the importance of objectives in evaluating forest management decisions.

5) Compare the approaches of a silviculturalist and an economist in considering how best to manage a forest. What are the main concerns of each likely to be? Can their approaches be reconciled?

 

2. Economic Efficiency, Market Processes, and Market Limitations

Economic Efficiency and Opportunity Costs. The Theory of Production. Factor Allocation among Uses. Market Efficiency and Market Failures in Forestry. Market Failures and Government Intervention.

REVIEW QUESTIONS

1) What is the "opportunity cost" of land and labour used in producing timber? How does competition for these inputs help to ensure that their prices reflect their opportunity costs?

2) Give examples of how land, labour, and capital are substitutable in timber production. Are these inputs subject to the law of diminishing returns?

 

3. Timber Supply, Demand and Pricing

The Demand for Timber. Timber Supply. Price Expectations and Supply Responses. Price, Cost, and Net Value. Long - Term Wood Supply Projections. Timber Supply and Value of the Forest Inventory. Timber Supply and the Economic Inventory.
Long-Run Effects of Growth and Depletion. Price Distortions.

REVIEW QUESTIONS

1) In what sense is the demand for timber a "derived demand"? Describe the connection, if any, between the demand for newspapers in New York and the demand for timber in Quebec.

2) Why does the full market supply response to a change in demand take longer for timber than for most other products?

3) Use a diagram of supply and demand curves to illustrate how improvements in the manufacture of artificial Christmas trees will affect the demand, price, and sales of natural Christmas trees.

4) What is the difference between a long-term projection of timber production for a region and a conventional market supply curve for timber?

5) What is the "extensive margin" of timber production? Give examples of changes in prices and costs that would shift the extensive margin.

 

4. Unpriced Forest Values

Unpriced Values: A Problem of Measurement. Consumer Surplus as a Measure of Value. Evaluating Unpriced Recreation. Intermediate Products in Forest Recreation. Recreation Capacity, Quality, and Crowding. Externalities. Cost - Effectiveness. Practical Limitations.

REVIEW QUESTIONS

1) The right to fish in a particular stream or to hunt in a particular area is usually priced in Europe but not in North America. What are the reasons for this difference? How does it affect the problem of evaluating these recreational resources?

2) What is "consumer surplus"? With reference to a typical demand curve, explain the relationship between consumer surplus and the total amount consumers are willing to pay for a product when the price is (a) positive, and (b) zero.

3) Why is it inappropriate to use the expenditures of visitors to a park as a measure of the value of the park?

4) Recalculate the total consumer surplus that would be attributable to the recreation site depicted in Figure II if the participation rate for each of the three zones were doubled.

5) How does the number of game animals in a forest affect the demand for hunting? What other factors are likely to affect the demand and value of hunting in the forest?

 

5. Land Allocation and Multiple Use

Intensity of Land Use. Extensive Margin of Land Use. Allocation among Uses. Combinations of Uses. Practical Difficulties.

REVIEW QUESTIONS

1) How does an increase in the wage rate affect the amount of labour that must be employed to generate maximum returns to a tract of forest land? How do diminishing returns to labour influence this effect?

2) Why can more intensive silviculture be justified on highly productive land than on land of low productivity?

3) Explain how an increase in the price of timber would lead to (a) more intensive cultivation of forest land, and (b) a shift in the extensive margin of timber production.

4) Some land that finds its highest use in timber production is less productive in this use than some land devoted to agriculture. Does this mean that the land devoted to agriculture would be better used in timber production?

5) A forest produces 2000 cubic metres of timber annually, valued at $50 per cubic metre, and livestock forage that supports 500 cattle, worth $100 per head. The livestock-carrying capacity could be increased by 25 per cent by reducing the forest cover, but this would reduce the annual harvest of timber by 300 cubic metres. Would such a change improve the efficiency of land use?

6) Why can't market forces always be relied on to ensure that land will be allocated to its highest use or combination of uses?

 

6. Valuation over Time and Investment Criteria

Time and the Role of Interest. Compounding and Discounting. Present Values. Criteria for Investment Decisions. Interest rate. Allowing for Inflation. Recognizing Uncertainty. Social Considerations.

REVIEW QUESTIONS

1) Why is $100 received today worth more than $100 to be received five years hence? Given an interest rate of 10 per cent, how do these two payments compare in value? By how much would the future receipt have to be increased to make it equivalent in value to the $100 today?

2) What is the present value of a forest park that generates recreational benefits of $250,000 per year, given an interest rate of 7 per cent?

3) A developer has a standing offer to purchase a parcel of forest land for $1200 per hectare. The forest supports a forty-year-old crop that would yield $3000 per hectare if harvested in ten years and a similar amount, net of all costs, every fifty years thereafter. If the forest owner's interest rate is 8 per cent, is it advantageous to him to sell the land to the developer now, after harvesting the present crop in ten years, or never?

4) Recalculate the optimal level of fertilization in Review Question number 4 in Chapter 2, assuming that the timber values would be realized five years after the fertilizer is applied, given an interest rate of 4 per cent.

5) If you had a limited budget, and you wanted to allocate it among a I variety of potential silvicultural projects to maximize the economic benefits, what criterion would you use to establish priorities among projects?

6) What is the real rate of interest if the market or nominal rate is 12 per cent and the inflation rate is 4 per cent?

 

7. Property Rights and Tenure Systems

Property, Value, and Economic Efficiency. Evolution of Forest Property. Dimensions of Property and Their Economic Implications. Exclusiveness in Forest Tenures. Common Forms of Forest Tenure. Economic Issues of Tenure Systems. Private and Public Ownership.

REVIEW QUESTIONS

1) If property can be described as a "bundle of sticks," each stick representing a right, what are some of the rights that can comprise someone's property interest in a forest?

2) Explain the externality that may result if someone has a well-defined interest in the industrial timber produced in a forest but no one has a comparable economic interest in the wildlife. Why must government take responsibility for protecting the wildlife values?

3) If someone holds only short-term harvesting rights over a forest, how are his profit-maximizing decisions likely to be less efficient from the viewpoint of society as a whole than if his rights were perpetual?

4) Why is the transferability of property important in promoting the efficient use of resources?

5) How do you explain the greater political support for public ownership of forestland than for farmland?

 

8. Taxes and Other Charges

Economic Issues in Forest Charges. Types of Forest Levies. Cost of Bearing Risk.

REVIEW QUESTIONS

1) What is a "neutral" tax? Give an example.

2) How does a yield tax affect incentives to invest in silviculture?

3) In what way will the extensive margin between forestry and agriculture be affected by a land tax that applies at a higher rate on forestland than on farmland?

4) How will a logger's incentive to "high grade" a stand be affected by stumpage charges that are (a) assessed on each cubic metre of timber recovered, and (b) assessed as a lump sum for the stand regardless of his actual harvest?

 

LITERATURE

Barr, Brenton and Kathleen E. Braden (1988). The Disappearing Russian Forest. London: Rowman & Littlefield.

Benham, Alexandra, Lee Benham and Michael Merithew (1995). "Institutional Reform in Central and Eastern Europe: Altering Paths with Incentives and Information." Research report, St. Louis: International Center for Economic Growth, Washington University.

Bogason, Peter (1994). "Nyinstitutionalisme, Public Choice og Bloomington-Skolen" (Neo-institutionalism, Public Choice and the Bloomington School). Grus, No. 44.

Breslauer, George W. (1995). "Aid to Russia: What Difference Can Western Policy Make," in Gail W. Lapidus (ed.) The New Russia; Troubled Transformation. Boulder: Westview Press, pp. 223-244.

URL: http://www.oecd.org/sge/ccnm/programs/tomsk/postprivat-wp.htm

Dallin, Alexander (1995). "Where Have All the Flowers Gone?," in Gail W. Lapidus (ed.) The New Russia; Troubled Transformation. Boulder: Westview Press, pp. 245-262

Davis, James A. (1985). The Logic of Causal Order. Beverly Hills, Ca.: Sage.

Eggertsson, Thrainn (1990). Economic Behavior and Institutions. Cambridge: Cambridge University Press.

Eggertsson, Thrainn (1996). "A Note on the Economics of Institutions," in Lee J. Alston, Thrainn Eggertsson and Douglass C. North (eds.) Empirical Studies in Institutional Change. Cambridge: Cambridge University Press, pp. 6-24.

Hodgson, Geoffrey M. (1989). Economics and Institutions. Cambridge: Polity Press.

Jensen, Donald N. (1997). Patrimonialism in Post-Soviet Russia. RFE/RL Newsline, URL: http://www.aa.net/~russia/mentor/palmentor.html.

Kaminski, Antoni Z. (1992). An Institutional Theory of Communist Regimes. San Francisco: ICS Press.

Kennaway, Alexander (1997). The Mental & Psychological Inheritance of Contemporary Russia. The Euro-Atlantic Foundation,
URL: http://xs4all.freenet.kiev.ua/NATO/eaf/papers/mental.htm#

Kharkhordin, Oleg and Theodore P. Gerber (1994). "Russian Directors' Business Ethic: A Study of Industrial Enterprises in St Petersburg." Europe-Asia Studies, Vol. 46, No 7, pp. 1075-1107.

Knight, Jack (1994). Institutions and Social Conflict. Cambridge: Cambridge University Press.

Layard, Richard and Andrea Richter (1995). "Labour market adjustment - the Russian way," in Anders Aslund (ed.) Russian Economic Reform at Risk. London and New York: Pinter.

North, Douglass C. (1990): Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge.

NUPI (1998). Centre for Russian Studies Database, Norwegian Institute of Foreign Affairs, URL: http://www.nupi.no/cgi-win/Russland/krono.exe/1636 (4 Dec. 1998).

Oakerson, Ronald J., (1992). "Analyzing the Commons: A Framework," in Daniel W. Bromely (ed.) Making the Commons Work. San Francisco: ICS Press, pp. 41-59.

Olsson, Roger (1997) New Forest Code Preserves Federal Ownership. Taiga-News 20, Internet version, March, URL: http://www.sll.fi/TRN/TaigaNews/News20/RussiaLaw.html (3 Dec. 1998).

Ostrom, Elinor, (1995). "The Institutional Analysis and Development Framework: An Application to the Study of Common-Pool Resources in Sub-Saharan Africa." Paper, Bloomington Indiana: Workshop in Political Theory and Policy Analysis, Indiana University, October 10,1995.

Ostrom, Elinor, Roy Gardner and James Walker (1994). Games and Rules and Common Pool Resources. Ann Arbor: University of Michigan Press.

Pejovich, Svetozar (1998). Economic Analysis of Institutions and Systems. London: Kluwer Academic Publishers.

Sabatier, Paul, (1991). "Toward Better Theories of the Policy Process." Political Science and Politics, Vol. XXIV, No. 2, pp. 144-56.

Shapiro, Judith (1995). "The Russian Mortality Crisis and Its Causes," in Anders As-lund (ed.) Russian Economic Reform at Risk, London: Pinter Publishers.

Shvidenko, Anatoly and Sten Nilsson (1997). "Are the Russian Forests Disappearing?" Unasylva, 48 (188), pp. 57-64.

Sproule-Jones, Mark, (1993). Governments at Action. Toronto: University of Toronto Press.

Thomson, James T., (1992). A Framework for Analyzing Institutional Incentives in Community Forestry. Rome: Food and Agriculture Organization of the United Nations.

Tolz, Vera and Irina Busygina (1997). "Regional Governors and the Kremlin: the Ongoing Battle for Power," Communist and Post-Communist Studies, Vol. 30, No. 4, pp. 401-426.

World Bank (1997). Russia; Forest Policy during Transition. A World Bank Country Study, Washington, D.C.: The World Bank.

FURTHER READING for # 1

Clawson, Marion. 1975. Forests for Whom and for What? Baltimore: Johns Hopkins University Press for Resources for the Future. Chapters 3 and 7

Duerr, William A. 1988. Forestry Economics as Problem Solving. [Blacks-burg, va]: By the author. Part I

Howe, Charles W. 1979. Natural Resource Economics: Issues, Analysis, and Policy. New York: John Wiley & Sons. Chapter I

Quade, E.S. 1982. Analysis for Public Decisions, 2nd ed. New York: North-Holland. Chapters 4-7

Rumsey, Fay, and William A. Duerr (eds.). 1975. Social Sciences in Forestry: A Book of Readings. Philadelphia: W.B. Saunders. Items 1, 2, and 12

FURTHER READING for # 2

Boyd, Roy G., and William F. Hyde. 1989. Forestry Sector Intervention: The Impacts of Public Regulation on Social Welfare. Ames: Iowa State University Press.

Gregory, G. Robinson. 1987. Resource Economics for Foresters. New York: John Wiley & Sons. Chapters 5 and 6

FURTHER READING for # 3

Duerr, William A. 1960. Fundamentals of Forestry Economics. New York:

McCraw-Hill. Part 3 . 1988. Forestry Economics as Problem Solving. [Blacksburg, va]: By the author. Parts 2,5

Gregory, G. Robinson. 1987. Resource Economics for Foresters. New York: John Wiley & Sons. Chapters 9 and 10

Jackson, David H. 1980. The Microeconomics of the Timber Industry. Boulder, co: Westview Press. Chapter 3

Mansfield, Edwin. 1982. Microeconomics: Theory and Applications, 4th ed. New York: W.W. Norton. Chapter 2 (or the shorter 4th ed., Chapter 2)

Nautiyal, J.C. 1988. Forest Economics: Principles and Applications. Toronto: Canadian Scholars' Press. Chapters 4 and 5

FURTHER READING for # 4.

Bowes, Michael D. and John V. Krutilla. 1989. Multiple-Use Management: The Economics of Public Forestlands. Washington, d.c.: Resources of the Future. Chapter 7

Boyd, Roy G., and William F. Hyde. 1989. Forestry Sector intervention: The Impacts of Public Regulation on Social Welfare. Ames: Iowa State University Press. Ch. 8

Cesario, F.J. and J.L. Knetsch. 1976. A recreation site demand and benefit estimation model. Regional Studies 10(l):97-104

Clawson, Marion, and Jack L. Knetsch. 1966. Economics of Outdoor Recreation. Baltimore: Johns Hopkins University Press for Resources for the Future. Part 2

Davis, L.S and K.N. Johnson. 1987. Forest Management, 3rd ed. New York: McCraw-Hill. Chapter 12

Freeman, A. Myrick III. 1979. The Benefits of Environmental Improvement: Theory and Practice. Baltimore: Johns Hopkins University Press for Resources for the Future. Chapters 5, 6, and 8

Pearse, Peter H. 1968. A new approach to the evaluation of nonpriced recreational resources. Land Economics 44(l):87-99

FURTHER READING for # 5.

Bowes, Michael D and John V. Krutilla. 1989. Multiple-Use Management: The Economics of Public Forestlands. Washington, d.c.: Resources for the Future. Chapter 3

Clawson, M. 1978. The concept of multiple use forestry. Environmental Law 8:281-308

Gregory, G.R. 1955. An economic approach to multiple use. Forest Science l(l):6-13

Pearse, P.H. 1969. Toward a theory of multiple use: the case of recreation versus agriculture. Natural Resources Journal 9(4):561-75

Sedjo, Roger A. (ed.). 1983. Governmental Intervention, Social Needs, and the Management of U.S. Forests. Washington, d.c.: Resources for the Future. Part I

FURTHER READING for # 6.

Baumol, WJ. 1968. On the social rate of discount. American Economic Review 58(40) :788-802

Davis, L.S., and K.N. Johnson. 1987. Forest Management, 3rd ed. New York: McCraw-Hill. Part 2

Gunter, John E., and Harry L. Haney, Jr. 1984. Essentials of Forestry Investment Analysis. Corvallis, or: OSU Book Stores

Harou, Patrice A. 1982. Evaluation of forestry programs: the with-without analysis. Canadian Journal of Forest Research 14(4):506-ll

Mishan, E.J. 1982. Cost-Benefit Analysis: An Informal Introduction, 3rd ed. London: George Alien & Unwin. Part 5

Pearce, D.W. 1983. Cost-Benefit Analysis, 2nd ed. London: Macrnillan. Chapters 5-8

Row, Clark, H. Fred Kaiser, and John Sessions. 1981. Discount rate for long-term forest service investments. Journal of Forestry 79(6):367-9

Sugden, Robert, and Alan Williams. 1978. The Principles of Practical Cost-Benefit Analysis. Oxford: Oxford University Press. Chapters 4, 5 and 15

Tompson. Emmet F and Richard W. Haynes. 1971. A linear programming-probabilistic approach to decision making under uncertainty. Forest Science 17(2):224-9

FURTHER READING for # 7.

Fortmann, Louise, and John W. Bruce (eds.). 1988. Whose Trees?: Proprietary Dimensions of Forestry. Boulder, co: Westview Press. Chapter 8

Furubotn, E., and S. Pejovich (eds). 1974. The Economics of Property Rights. Cambridge, ma: Ballinger Publishing Co.

Pearse, Peter H. 1980. Property rights and the regulation of commercial fisheries. Journal of Business Administration 11(1 & 2):185-209

Posner, Richard A. 1986. Economic Analysis of Law. 3rd ed. Boston: Little, Brown & Co. Chapter 3

Randall, Alan. 1987. Resource Economics: An Economic Approach to Natural Resource and Environmental Policy, 2nd ed. New York: John Wiley & Sons. Chapter 8

FURTHER READING for # 8.

Boyd, Roy G and William F. Hyde. 1989. Forestry Sector Intervention: The Impacts of Public Regulation on Social Welfare. Ames: Iowa State University Press. Chapter 7

Duerr, William A. 1960. Fundamentals of Forestry Economics. New York: McGraw-Hill. Chapters 26 and 27

Gregory, G. Robinson. 1987. Resource Economics for Foresters. New York: John Wiley & Sons. Chapter 8



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