Abstract
In theory, decisions with long-term pay-offs, such as whether to invest in forest management, are influenced by time preferences. However, this relationship is difficult to test empirically and time preferences are often assumed constant across individuals. We examine the relationship between forest management behavior and personal discount rates by modeling forest management choices as a function of individual discount rates elicited through binary choice questions. We focus on “limited resource woodland owners” in the Southern United States, including landowners who are traditionally underserved by public institutions (i.e., minorities and women) and who face financial, social and natural resource constraints that limit their forest management options. We found that the probability of harvesting timber is positively related with personal discount rates, as predicted by theory. However, discount rates are not significantly related to stand improvements or contact with a professional forester, suggesting that lack of investment in forest management is not a result of landowner impatience. Rather, these behaviors are driven by characteristics such as size of property, proximity of residence to woodlands, and tenureship characteristics including whether the woodlands are inherited.
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Notes
- 1.
We refer to this group as “woodland” owners rather than “forestland” owners, because they generally recognize and refer to their properties as having “woods” rather than “forest”, which can have connotations of industrial timber management.
- 2.
The model can be expanded to consider bequest factors, which in turn would be influenced by tenure status (e.g., with uncertainty about future benefits introduced by heir property status).
- 3.
The complete first order conditions are displayed in Appendix A.1.
- 4.
The survey instrument was pretested and reviewed by woodland owners, forestry faculty at NCSU, and forestry extension agents to ensure that the questions were easy to understand yet presented forestry concepts accurately. Information about the survey was published in local newsletters a month before the survey took place. Landowners selected for the survey were sent postcards to inform them they were being requested to participate. This mailing was followed by a survey packet that included a cover letter, survey booklet, request for survey results, pre-addressed postage paid envelope, and small gifts (e.g. a refrigerator magnet with the study logo, $1 bill, mini cd-rom with forestry information). A month afterwards, landowners who had not replied were sent follow-up postcard reminders.
- 5.
More details on the study are available from www.ncsu.edu/woodland.
- 6.
There were several ways that landowners with more than 100 acres could have been included in our sampling frame. Most often, this happened because they own land outside the seven study counties. In some cases, they owned land under different names (e.g., as heir property) that were not linked in our sampling frame.
- 7.
The discount rate is assumed to follow a log-normal distribution for two reasons: (1) estimates from this distribution were within observed discount rate ranges for 70 % of the respondents, which is a higher proportion compared to results based on normal or Weibull (extreme value) distributions; and (2) the log-normal distribution limits the estimates to be non-negative, which is supported by the time preference literature (e.g. Olson and Bailey 1981).
- 8.
Environmental preferences are potentially correlated with time preferences and a determinant of forest management behavior, and therefore could potentially also introduce multi-collinearity into models of forest management as a function of time preferences. This is confirmed by a positive and statistically significant (P-value: 0.025) correlation between the estimated discount rate and respondents who put high importance on protecting nature. However, this variable does not have a statistically significant impact on any of the behaviors in multivariate models.
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Appendices
Appendix
First Order Conditions
Re-stating the Lagrangean function (from Eq. 5.3)
Maximize Eq. A.1 with respect to C1, C2, N1, N2, X1, E1, E2, S, and Q2
Setting Eq. A.6 equal to Eq. A.4, we get:
Substitute Eq. A.7 into Eq. A.5:
Substitute Eqs. A.2 and A.3 into Eq. A.8 and rearranging terms:
Survey Module for Eliciting Personal Discount Rates
Suppose that you are given 50 acres of woodland about a mile away from your house. This woodland has a mixture of pines and hardwoods and a mixture of different size trees. A forester takes a look at this woodland and gives you two choices: Choice A or Choice B.
(1) | Choice A | Choice B |
You cut and sell all of the trees now and replant with pine seedlings. You earn $(P321) per acre. Every 32 years, you cut and replant all of your trees and earn $(P321) per acre. Your earnings already include all cost | You cut and sell some of the trees now and let them grow back on their own. You earn $(P8 1) per acre. Every 8 years you cut some more trees and earn $(P8 1) per acre. Your earnings already include all costs | |
This choice gives you more money each time you sell, but you wait longer between harvests | This choice gives you less money each time you sell, but you don’t wait as long between harvests |
Which would you pick?
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□1 Choice A
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□2 Choice B
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□3 Neither
Now suppose that you end up with a different piece of woodland and the forester gives you the following two new choices: Choice A or Choice B.
(2) | Choice A | Choice B |
You cut and sell all of the trees now and replant with pine seedlings. You earn $(P321) per acre. Every 32 years, you cut and replant all of your trees and earn $(P321) per acre. Your earnings already include all costs | You cut and sell some of the trees now and let them grow back on their own. You earn $(P8 1) per acre. Every 8 years you cut some more trees and earn per $(P8 1) acre. Your earnings already include all costs | |
This choice gives you more money each time you sell, but you wait longer between harvests | This choice gives you less money each time you sell, but you don’t wait as long between harvests |
Which would you pick?
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□1 Choice A
-
□2 Choice B
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□3 Neither
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Atmadja, S.S., Sills, E.O. (2013). Forest Management and Landowners’ Discount Rates in the Southern United States. In: Kant, S. (eds) Post-Faustmann Forest Resource Economics. Sustainability, Economics, and Natural Resources, vol 4. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-5778-3_5
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