 Homework #9 Thursday  Quiz #4  Group Outline due today  Exam #4 Dec. 1  Group Presentations Dec. 6 & 8.

 Open-access regulations (permits, taxes, technology restrictions) and limited- entry regulations(ITQs, private ownership) are both intended to reduce the problems that result from unregulated open access to a fishery. However, economists argue that limited-access regulations are preferred to open-access regulations on efficiency grounds. Explain why.

 Explain why the characteristics of timber make it both an output and capital good.

 Graph the growth curve of timber. What the factors that affect this growth curve?

 Explain the criterion used to determine the optimal age to harvest a stand of trees.

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 How do an increase in the following affect the optimal harvest age? Planting costs Harvesting costs Per-unit tax on harvesting

 Interdependences Applying single-harvest model may not be so simple Single-harvest model, harvest when marginal benefit of an additional year’s growth = marginal opportunity cost of capital Infinite-planning model, you examine the optimal length of harvest and replanting (“Optimal Rotation”).  Length of each period affects the benefits in the next period  The opportunity cost of delay is the benefit from the next best alternative (harvesting and replanting).

 All else constant, the optimal rotation in the infinite-planning case is shorter than in the single-harvest case. The marginal cost of delay is higher since there is now an opportunity cost of starting the next cycle later. Thus, the optimal rotation is shorter.

 Suppose there are two identical forest plots except that one will be harvested and left while the second will be cleared after the harvest and turned into a housing development. In terms of efficiency, which one should have the oldest harvest age? Why?

 Opportunity costs are the forgone benefits from the next best alternative  Marginal cost of delay is the forgone benefits from harvesting and replanting for the next period.  The net benefits in the next period depend on the planting costs and the harvesting cost.

 Occurs when the marginal cost of delay equals the marginal benefit of delay.  How do an increase in the following affect the optimal rotation age? Planting costs Harvesting costs Per-unit tax on harvesting

 The value of a standing forest as wildlife habitat or ecosystem function is an external cost. Failure to recognize social values will result in inefficiencies.  External costs of timber harvesting may not be adequately considered by the private landowner.  Deforestation involves transboundary or global externalities. Biodiversity: deforestation is a major source of species loss. Many benefits of species preservation are external to the country with the forest. (Biodiversity vs. genetic diversity) Climate change: deforestation contributes to climate change, but the benefits of leaving the trees standing are largely external. The costs, however, are largely internal.

 Government policies can also create perverse incentives Brazil government gave agricultural tax-break  Government resettlement programs have also encouraged deforestation by facilitating the movement of migrants into agriculture. Squatter rights encourage deforestation Allpahuayo-Mishana National Reserve in the Peruvian Amazon  Market conditions can encourage the transition from forests to agriculture