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Forest Economics

Introduction

Hari Sharma Neupane

Sr,. Agriculture Economist 

M.Sc. MA, PhD

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 Aims of course is to:

Improve your knowledge andunderstanding of forest economicsincluding concepts related to forest

policy; forestry business and productmarketing

Understand the interconnections

between forest economics and policies

Apply economic evaluation techniquesto be effective natural resource

managers

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Brainstorming and Basic

concept (overview)What do you mean by economics? (A)

Why we need to know economic theory and principles ?

(B)

What are the major discipline of the economics? (C)

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(A)------Economics is the efficientallocation of resources

and profit/output maximization

-------Very simply: science of choice andfirm

(B)-------Resources are scares, thus ithelps to efficient

use of resources to meet ourchoices/wants

properly

(C)-----

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Economics andDevelopment studies

Adam Smith (1776) – also consideredfirst development economist. His firsttreatise “Wealth of Nation” describedthe systematic study of problems and

processes of economic development inAfrica, Asia and Latin America

Marxist Economics: theory of surplus

value and socialist economics-centralized economy

Recent developments in theories of 

poverty trap, role of institution

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Traditional Economics: efficient andleast cost allocation of scarce productive

resources and optimal growth of theseresources over time for ever expandingrange of goods and services, advance

capitalist world of perfect market;consumer sovereignty, automatic priceadjustment, marginal cost and marginalprofit, economic rationality

Political economy: goes beyondtraditional economics with role of socialand institutional processes; influence of 

elite and political institution in scarce

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Concept and Scope of Naturalresource economics

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Concept and Scope of Naturalresource economics

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NR economics is the study of theallocation of scarce natural resourcesand environmental services/facilities

Must maintain a societal perspective.Most natural resource questionscannot be adequately addressed if 

viewed from the standpoint of anindividual or single firm

Study of natural resources must

consider allocation of resources over

Concept and Scope of Naturalresource economics

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NR Economics draws heavily on threeother economic fields

Micro Theory – efficient production fromresources at a point in time

Capital Theory – NR economics parallelsthe dynamic study of investment andgrowth of stocks of capital theory

Welfare Economics – the allocation of goods and services within a society(ownership, equity, and distribution)

NR issues are multi-disciplinary in natureand potential for long term decision

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Aspects to resourceproblems

Physical – what is technically possible?(depends on supply of resources andproduction possibilities or state of 

technology)

Institutional – what is sociallyacceptable? (determined by laws,

customs and values of society)

Economic – Which options areeconomically efficient or optimal?

 These elements are d namic- chan es

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Forest Economics There is debate on definition, however

resource economics is considered as abranch of development economics

FOREST economics is the application of 

economic principles to a wide range of subjects

management of the various forest

resources through the processing,marketing and consumption of forestproducts

outdoor recreation economics and forest

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Forest resource: nineunique featuresExtensive, visible and "open"

resources

Renewable resources

Production capacity : need to waitand living growth

Multiple use

Forests are both ecosystems andproduction systems

Product and benefit multiplicity

Geo ra hical and biolo ical

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Figure : Classification of forest and tree products

(modification based on FAO NWFP Progam and deGroot et al 2002

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Forest Resources :Introduction

Forest Growth and the Harvesting Problem

1. Supply from Private Forests

• Determination of rent and land use decision

• Comparative dynamics of the harvesting decision

• Total Timber supply.

2. Public Policy Toward Forests

• Forest supply from public, private and community

forests;

• Managing for conservation

• Benefits from standing forest services

3.Deforestation

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Forest Resources :Introduction

Simple Forest Harvesting Problem

Notation and Assumptions

Harvest Rule

Average Annual Timber SupplyHarvesting and Replanting

Optimal Harvest Rule with Replantingand Re-harvesting

 The Land Use Decision andDeterminants

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Forest Resources:Introduction

Service Flow from a Standing Forest

Optimal Harvest Age when ServiceFlow

Conservation Forestry approach

Deforestation

Policy Challenges: global and national,B/C ratio, NPV

Climate change

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 Thanks

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