, Volume 1, Issue 1, pp 83-95

Another reconciliation between economists and forestry experts: OLG-arguments

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Abstract

Foresters often claim that the goal of good forest policy is to have a sustained forest yield, or even a maximum sustainable yield. They also claim that people wish to save a few extra trees for their children. This bequest motive is not modelled in the standard approach to the optimal rotation problem. In this paper, we present a standard version of an overlapping generation model augmented with a simple tree technology. We show in particular that the market equilibrium can be dynamically inefficient, and that a bequest motive in terms of trees can correct for the overaccumulation of capital that causes the inefficiency. The bequest motive also enables us to account for a harvesting intensity varying with age (young people typically cut more than elderly people) in spite of a perfect capital market.

The crux of the argument is that a bequest motive is likely to increase the equilibrium interest rate and move the economy away from a maximum sustainable yield policy. It, however, improves efficiency and is able to explain empirical regularities that are not easily explained by a traditional perfect capital market approach to forestry.

The author acknowledges comments from Karl-Göran Mäler, Stockholm School of Economics, participants in the economics-forestry economics seminar at the University of Umeå, and two anonymous referees.