Forestry Economics: A Managerial Approach

409 Pages·2011·8.733 MB·English

by  John E. Wagner

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TEXTBOOKS IN ENVIRONMENTAL AND AGRICULTURAL ECONOMICS
Forestry Economics
Forestry Economics introduces students and practitioners to all aspects of the
management and economics of forestry. The book adopts the approach of mana-
gerial economics textbooks and applies this to the unique processes and problems
faced by managers of forests. While most forestry economics books are writ-
ten by economists for future economists, what many future forest and natural
resource managers need to understand is what economic information is and how
to use it to make better business and management decisions. John E. Wagner
draws on his twenty years of experience teaching and working in the field of for-
est resource economics to present students with an accessible understanding of
the unique production processes and problems faced by forest and other natural
resource managers.
There are three unique features of this book:
• The first is its organization. The material is organized around two common
economic models used in forest and natural resources management decision
making.
• The second is the use of case studies from various disciplines: outdoor and
commercial recreation, wood products engineering, forest products, and
forestry. The purpose of these case studies is to provide students with appli-
cations of the concepts being discussed within the text.
• The third – at the end of each chapter – is revisiting the question of how to
use economic information to make better business decisions. This ties each
chapter to the preceding ones and reinforces the hypothesis that a solid work-
ing knowledge of these economic models and the information they contain is
necessary for making better business decisions.
This textbook is an invaluable source of clear and accessible information on
forestry economics and management for not only economics students, but also
for students of other disciplines and those already working in forestry and natu-
ral resources.
John E. Wagner is Professor of Forest Resource Economics at the State
University of New York College of Environmental Science and Forestry in
Syracuse, USA.
Routledge Textbooks in Environmental and
Agricultural Economics
1 The Economics of Agricultural Development
Second edition
George W. Norton, Jeffrey Alwang and
William A. Masters
2 Agricultural Marketing
James Vercammen
3 Forestry Economics
John E. Wagner
Forestry Economics
A managerial approach
John E. Wagner
First published 2012
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa
business
© 2012 John E. Wagner
The right of John E. Wagner to be identified as author of this work has
been asserted by him/her in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Wagner, John E.
Forestry economics : a managerial approach/by John E. Wagner.
p. cm.
Includes bibliographical references and index.
1. Forests and forestry–Economic aspects. 2. Forest management.
I. Title.
SD393.W26 2011
634.9’2–dc22 2011002712
ISBN: 978-0-415-77440-6 (hbk)
ISBN: 978-0-415-77476-5 (pbk)
ISBN: 978-0-203-80802-3 (ebk)
Typeset in Times New Roman by Sunrise Setting Ltd, Torquay, UK
Contents
List of figures vii
List of tables xii
Preface xvi
Acknowledgments xvii
Abbreviations xviii
1 Introduction 1
2 Production systems 20
3 Costs 51
4 Revenue 82
5 Profit 103
6 Supply and demand 121
7 Market equilibrium and structure 151
8 Capital theory: investment analysis 176
9 The forest rotation problem 209
10 Capital theory: risk 239
11 Forest taxes 255
12 Estimating nonmarket values 266
Appendix 1: mathematical appendix 294
Appendix 2: technical efficiency versus production cost efficiency 296
vi Contents
Appendix 3: average and marginal cost 299
Appendix 4: profit and least cost models 301
Appendix 5: calculus of profit maximization 303
Appendix 6: price searching 306
Appendix 7: financial formulae 308
Appendix 8: sustainability and the interest rate 310
Appendix 9: misinterpreting the internal rate of return in forest
management planning and economic analysis 313
Appendix 10: calculus of the even-aged forest rotation problem 342
Appendix 11: the Faustmann–Smith–Samuelson model 345
Notes 346
Bibliography 363
Index 377
List of figures
1.1 Illustration of an inside-out beam 3
1.2 Increase in net benefit or profit through trade 12
1.3 The Architectural Plan for Profit 17
2.1 The Architectural Plan for Profit 21
2.2 Illustration of the steps to manufacture an inside-out beam 25
2.3 Single-pass production system used by the Mobile Micromill 26
2.4 Production systems description continuum 27
2.5 Gross and net yields for Select Red Oak 35
2.6 Yield of Loblolly Pine Plantation 36
2.7 Net volume for Select Red Oak 36
2.8 Loblolly Pine Plantation volume 37
2.9 Unthinned oak stand in Southwestern Wisconsin (medium site) 38
2.10 Select Red Oak average and marginal product 42
2.11 Loblolly Pine Plantation average and marginal product 42
2.12 Select Red Oak total, average, and marginal product 44
2.13 Loblolly Pine Plantation total, average, and marginal product 45
2.14 Unthinned oak stand in Southwestern Wisconsin (medium site) 46
2.15 Inside-out beam total product 48
3.1 The Architectural Plan for Profit 52
3.2 Knockdown Panel Furniture specialized fittings 57
3.3 Steps to install Knockdown Panel Furniture fittings 58
3.4 Fixed costs for the Mobile Micromill 63
3.5 The relationship between the production system and total
variable cost 64
3.6 Annual total variable sap collection costs by size of
operation – Maple Syrup Operation case study 65
3.7a Average annual sap collection costs by size of operation –
Maple Syrup Operation case study (1998 USD) 68
3.7b Average annual sap collection costs for a 12,000-tap
operation – Maple Syrup Operation case study (1998 USD) 68
3.8 Average fixed costs for a 12,000-tap operation (1998 USD) 69
3.9 Average variable and marginal sap collection costs for a
12,000-tap operation (1998 USD) 74
viii List of figures
3.10 Estimated total cost for the ISO Beam case study 77
3.11 Supply chain 79
4.1 The Architectural Plan for Profit 83
4.2 Total revenue from a full day charter boat fishing for lake
trout and salmon on New York’s Great Lakes (2002 USD) 86
4.3 Total revenue for the ISO Beam case study (1996–1998 USD) 86
4.4 Total revenue for Select Red Oak per tree by tree grade 88
4.5 Total revenue for Loblolly Pine Plantation per acre by product
class 91
4.6 Average revenue for Loblolly Pine Plantation per acre by
product class 91
4.7 Marginal revenue for Loblolly Pine Plantation per acre by
product class 93
4.8 Total revenue product for Select Red Oak by grade 95
4.9 Average revenue product for Select Red Oak by grade 97
4.10 Marginal revenue product for Select Red Oak by grade 99
4.11 Average and marginal revenue product for Select Red Oak
by grade 100
4.12 One-inch increment to diameter at breast height for red oak 101
5.1 The Architectural Plan for Profit 104
5.2 Total revenue 106
5.3 Total cost 107
5.4 (a) Total revenue and total cost; (b) Profit; (c) Profit 108
5.5 (a, b) Profit searching 110
5.6 Average annual costs for 5,100-gallon maple syrup operation 115
5.7 Average annual variable costs for 5,100-gallon maple
syrup operation 117
5.8 Marginal costs for 5,100-gallon maple syrup operation 117
6.1 The Architectural Plan for Profit 122
6.2 The market – supply and demand 122
6.3 The relationship between supply and the production system 124
6.4 Average variable and marginal cost of a softwood dimension
lumber sawmill 128
6.5a Marginal cost and supply curves of a softwood dimension
lumber sawmill 129
6.5b Supply curve of a softwood dimension lumber sawmill 129
6.6 Average variable and marginal cost curves for maple syrup
production 130
6.7a Marginal cost and supply curves for maple syrup production 131
6.7b Supply curve for maple syrup production 131
6.8 The supply curve 132
6.9 Total variable cost 133
6.10 Producer surplus 133
6.11 Modeling the effect of changes in output price 135
6.12 Modeling the effect of changes in the production system 136
List of figures ix
6.13 Modeling the effect of changes in the price of inputs 137
6.14 Modeling the effect of changes in the expected prices 137
6.15a Deriving consumer surplus 140
6.15b Consumer surplus 140
6.16 Modeling the effect of changes in output price 143
6.17 Modeling the effect of changes in economic variables
given in Table 6.6 144
7.1 The Architectural Plan for Profit 152
7.2a Market supply curve 153
7.2b Market demand curve 153
7.3a Market producer surplus 154
7.3b Market consumer surplus 154
7.3c Market equilibrium 154
7.4 The relationship between supply, producer surplus, and the
production cost efficiency 155
7.5a Market equilibrium given monopolistic competition in the
short-run as viewed by an entrepreneur 158
7.5b Market equilibrium given monopolistic competition in the
long-run 159
7.6a Market equilibrium given a monopoly 161
7.6b Market equilibrium: monopoly versus workable competition 162
7.7a Market equilibrium given a monopsony 163
7.7b Market equilibrium: monopsony versus workable competition 165
7.8 Marginal cost pricing 169
7.9a Derived demand 171
7.9b Derived demand 171
7.9c Derived demand: shifts move from final consumer product
to natural resource 172
7.10a Derived supply 173
7.10b Derived supply: shifts move from natural resource to final
consumer product 174
8.1 The Architectural Plan for Profit 177
8.2a The time line of a cash flow diagram 184
8.2b The cash flow diagram 184
8.3 Example cash flow diagram 184
8.4a Loblolly pine total product curve 185
8.4b Loblolly pine cash flow diagram 185
8.5a Unthinned oak stand in Southwestern Wisconsin (medium site)
total product curve 186
8.5b Unthinned oak stand in Southwestern Wisconsin (medium site)
cash flow diagram 186
8.6 Future value cash flow diagram 188
8.7 Future value example 188
8.8 Present value cash flow diagram 189
8.9 Present value example 190