Seeing the Forest and the Seeing the Forest and the Trees: Insights into the Trees: Insights into the Efficient Allocation of Efficient Allocation of

Forest ResourcesForest Resources

Joshua FarleyJoshua Farley

Community Development and Applied EconomicsCommunity Development and Applied Economics

Gund Institute of Ecological EconomicsGund Institute of Ecological Economics

University of VermontUniversity of Vermont

joshua.farley@uvm.edujoshua.farley@uvm.edu

What is Economics?What is Economics? Economics is the allocation of scarce Economics is the allocation of scarce

resources among alternative desirable resources among alternative desirable endsends

Sequence of questions:Sequence of questions: What are the desirable ends?What are the desirable ends? What are the scarce resources, and what is What are the scarce resources, and what is

their nature?their nature? How do we allocate?How do we allocate?

This presentation will attempt to answer This presentation will attempt to answer these questions for foreststhese questions for forests

Desirable Ends Desirable Ends from Forestsfrom Forests

Raw MaterialsRaw Materials

TimberTimber Non-timber forest Non-timber forest

productsproducts

Ecosystem ServicesEcosystem Services

Regulation Regulation ServicesServices

Water regulationWater regulation Disturbance regDisturbance reg Erosion controlErosion control Soil creation Soil creation PollinationPollination Climate regulationClimate regulation Nutrient cyclingNutrient cycling Biological controlBiological control Waste absorptionWaste absorption etc.etc.

Provisioning Provisioning ServicesServices

Production of food, Production of food, fuel, fiber fuel, fiber (regeneration of (regeneration of structure)structure)

History of VermontHistory of Vermont Clearing of land Clearing of land

(Timber, Farmland)(Timber, Farmland) Erosion, soil loss, Erosion, soil loss,

economic collapseeconomic collapse DepopulationDepopulation Can we do this Can we do this

again?again?

Information Information ServicesServices

Recreation, tourismRecreation, tourism Forests: jobs for 2,393 Forests: jobs for 2,393

Vermonters Vermonters Annual payrolls of $33 Annual payrolls of $33

million annuallymillion annually Unknown benefits: e.g. Unknown benefits: e.g.

TaxolTaxol Cultural attachmentsCultural attachments SceneryScenery

Supporting Supporting ServicesServices

HabitatHabitat RefugiaRefugia Without Without

biodiversity, there biodiversity, there are no other are no other servicesservices

ConversionConversion

AgricultureAgriculture

DevelopmentDevelopment

3.5 times more 3.5 times more phosphorus run-off from phosphorus run-off from developed land than ag developed land than ag

landland

How do we decide which of How do we decide which of these benefits is most desirable? these benefits is most desirable?

Characteristics of Forest Characteristics of Forest Goods and ServicesGoods and Services

Characteristics of Timber and Characteristics of Timber and other Ecosystem Goodsother Ecosystem Goods

Raw materials provided by nature are Raw materials provided by nature are essential for all economic productionessential for all economic production Impossible to make something from nothingImpossible to make something from nothing

Characteristics of Ecosystem Characteristics of Ecosystem GoodsGoods

We can use them We can use them up as fast as we likeup as fast as we like

If I use it, you can'tIf I use it, you can't Competition for useCompetition for use

Market goodsMarket goods Ecosystem structure, Ecosystem structure,

building blocks of building blocks of ecosystemsecosystems

Characteristics of Ecosystem Characteristics of Ecosystem ServicesServices

Essential to human Essential to human survivalsurvival

Provided at a given rate Provided at a given rate over timeover time

If I use it, you still can If I use it, you still can (except waste absorption)(except waste absorption) Cooperative in useCooperative in use

Can't be ownedCan't be owned Non-market goods—no Non-market goods—no

price signal to indicate price signal to indicate scarcityscarcity

The Laws of EcologyThe Laws of Ecology• The raw materials converted into economic The raw materials converted into economic

products are elements of ecosystem structureproducts are elements of ecosystem structure• Ecosystem services are provided by a special Ecosystem services are provided by a special

configuration of ecosystem structureconfiguration of ecosystem structure

Ecosystem Services, uncertainty Ecosystem Services, uncertainty and Ignoranceand Ignorance

We often don't know what We often don't know what services are until they're services are until they're gonegone Passenger pigeons and Passenger pigeons and

Lyme diseaseLyme disease The ozone layer The ozone layer

Ecosystem Services, Uncertainty Ecosystem Services, Uncertainty and Ignoranceand Ignorance

Ecological thresholds Ecological thresholds IrreversibilityIrreversibility Impacts of climate change, extinction, etc.Impacts of climate change, extinction, etc. What risks should we impose on future What risks should we impose on future

generations?generations?

How do we allocate?How do we allocate?

The Economic ProblemThe Economic Problem Macro-allocation: How do we allocate finite Macro-allocation: How do we allocate finite

ecosystem structure (forests) between:ecosystem structure (forests) between: Economic production (conversion, timber)Economic production (conversion, timber) Production of life sustaining ecosystem goods Production of life sustaining ecosystem goods

and servicesand services How should we distribute resources among How should we distribute resources among

individuals?individuals? Who is entitled to ownership of ecosystem Who is entitled to ownership of ecosystem

goods?goods? Is anyone entitled to ecosystem services?Is anyone entitled to ecosystem services?

Relative ValuesRelative Values

Both economic production and ecosystem Both economic production and ecosystem services essential to our survivalservices essential to our survival

Economics looks at marginal value—value Economics looks at marginal value—value of one more unitof one more unit More we have of something, the less one more More we have of something, the less one more

unit is worthunit is worth Value of economic production is decreasingValue of economic production is decreasing Value of ecosystem services is increasingValue of ecosystem services is increasing When do we stop converting?When do we stop converting?

Estimated value of global ecosystem Estimated value of global ecosystem services twice that of economic output services twice that of economic output

The Property Rights IssueThe Property Rights Issue

Private property rightsPrivate property rights Is it fair to prevent landowners from using Is it fair to prevent landowners from using

their land as they wish?their land as they wish? Public property rightsPublic property rights

Is it fair for landowner to degrade ecosystem Is it fair for landowner to degrade ecosystem services that entire community depends on?services that entire community depends on?

How do you feel about Ticonderoga paper How do you feel about Ticonderoga paper mill?mill?

The Freedom IssueThe Freedom Issue

Freedom to do as I like with what I ownFreedom to do as I like with what I own Freedom not to suffer from what others do. Freedom not to suffer from what others do. Second freedom did not use to matter, but Second freedom did not use to matter, but

has become more pressing.has become more pressing.

Solving the ProblemSolving the Problem

Market solutionsMarket solutions one dollar, one vote—plutocracyone dollar, one vote—plutocracy Provides incentives that may make us all Provides incentives that may make us all

better off, better off, under certain circumstancesunder certain circumstances Effective for many types of goods and Effective for many types of goods and

servicesservices Those that can be ownedThose that can be owned Those for which use by one person prevents Those for which use by one person prevents

use by anotheruse by another

Solving the ProblemSolving the Problem How do make decisions about resources How do make decisions about resources

that can't be owned (non-excludable), that can't be owned (non-excludable), and my use does not leave less for you and my use does not leave less for you to use (non-rival)?to use (non-rival)? Markets don't existMarkets don't exist No market incentive to provide resourcesNo market incentive to provide resources One citizen one vote? Democracy?One citizen one vote? Democracy? Cooperative provision, cooperative use?Cooperative provision, cooperative use?

Existing property rights give owners the Existing property rights give owners the right to ecosystem goods (structure), right to ecosystem goods (structure), hence control over ecosystem serviceshence control over ecosystem services

Example: Brazil’s Atlantic RainforestExample: Brazil’s Atlantic Rainforest

•Ecosystem services of rainforest Ecosystem services of rainforest valued at $2006/ha/yearvalued at $2006/ha/year•World’s highest biodiversity humid World’s highest biodiversity humid forest converted to pasture yielding forest converted to pasture yielding $20/ha/year$20/ha/year•Causes droughts, floods, erosion, Causes droughts, floods, erosion, biodiversity loss, microclimate change, biodiversity loss, microclimate change, etc. etc. •Greedy self interest creates invisible Greedy self interest creates invisible footfoot

•Ecosystem services: COEcosystem services: CO22 sequestration, storm sequestration, storm buffer, waste absorption, nursery for 80% of buffer, waste absorption, nursery for 80% of commercial seafood speciescommercial seafood species•Shrimp: high profit, short livedShrimp: high profit, short lived•Intact mangroves produce more seafood than Intact mangroves produce more seafood than pondsponds•Why convert?Why convert?

•Benefits of conversion go to individualBenefits of conversion go to individual•Benefits of preservation go to local, regional, global Benefits of preservation go to local, regional, global communitycommunity

•Conversion only occurs with private Conversion only occurs with private ownershipownership•Greedy self interest creates invisible footGreedy self interest creates invisible foot

Example: Conversion of Mangrove Example: Conversion of Mangrove Ecosystems to Shrimp AquacultureEcosystems to Shrimp Aquaculture

Allocation OptionsAllocation Options

Let rights to goods trump rights to Let rights to goods trump rights to servicesservices Risk another collapse of Vermont's economyRisk another collapse of Vermont's economy Services probably provide more benefits Services probably provide more benefits

than goods (at least globally). Inefficient.than goods (at least globally). Inefficient. Limit rights to degrade servicesLimit rights to degrade services

Property rights as a bundleProperty rights as a bundle Lake Tahoe exampleLake Tahoe example Is this fair? Speculators vs. producersIs this fair? Speculators vs. producers

Allocation OptionsAllocation Options

Penalize activities that destroy ES Penalize activities that destroy ES (limitations on rights)(limitations on rights) TaxesTaxes Impact fees on developmentImpact fees on development Make land taxes commensurable with social Make land taxes commensurable with social

costs (i.e. much higher taxes on developed costs (i.e. much higher taxes on developed land)land)

PersuasionPersuasion Convince landowners to provide public Convince landowners to provide public

benefitsbenefits Akin to voluntary taxesAkin to voluntary taxes

Allocation OptionsAllocation Options Award rights to communityAward rights to community

Commons trustCommons trust Mandate to provide for future generationsMandate to provide for future generations Limit use (e.g. development rights), auction Limit use (e.g. development rights), auction

off or give awayoff or give away May be best solution when resources May be best solution when resources

unowned, e.g. waste absorption capacityunowned, e.g. waste absorption capacity

Allocation OptionsAllocation Options

Purchase rights to ecosystem servicesPurchase rights to ecosystem services Conservation easementsConservation easements Subsidies for uses that provide public Subsidies for uses that provide public

benefits (e.g. sustainable forestry vs. benefits (e.g. sustainable forestry vs. development)development)

Community purchase of landCommunity purchase of land Payments for ecosystem services, e.g. NYCPayments for ecosystem services, e.g. NYC

The “Tragedy of the Non-Commons”The “Tragedy of the Non-Commons”

Occurs when private ownership is Occurs when private ownership is ecologically unsustainable, socially unjust, ecologically unsustainable, socially unjust, and/or economically inefficientand/or economically inefficient

Any privately owned resource that Any privately owned resource that provides non-rival benefits provides non-rival benefits

SolutionSolution

Social provision and ownership of non-Social provision and ownership of non-rival benefits rival benefits Purchase property rightsPurchase property rights Legally change property rightsLegally change property rights Commons trustCommons trust

Society determines supply (CO2, SO2, Society determines supply (CO2, SO2, endangered species, parks, fisheries, life endangered species, parks, fisheries, life support functions of forests, etc.), market support functions of forests, etc.), market determines pricedetermines price

Allocation and Ecosystem Allocation and Ecosystem Goods/ServicesGoods/Services

Macroallocation socially determinedMacroallocation socially determined Prices must adjust to socially determined Prices must adjust to socially determined

supply, since ecosystem resilience and supply, since ecosystem resilience and fecundity cannot adjust to pricesfecundity cannot adjust to prices

ConclusionsConclusions

We cannot decide how to allocate until we We cannot decide how to allocate until we understand nature of scarce resourcesunderstand nature of scarce resources

Some resources best allocated through Some resources best allocated through competition, others through cooperationcompetition, others through cooperation Private ownership appropriate in cases of Private ownership appropriate in cases of

competitioncompetition Common ownership more efficient, just and Common ownership more efficient, just and

sustainable in cases of cooperationsustainable in cases of cooperation

ConclusionsConclusions

Ideology: socialism vs. capitalismIdeology: socialism vs. capitalism All one answer all the timeAll one answer all the time Capitalist answer is all markets (competition), Capitalist answer is all markets (competition),

all the timeall the time Science: cooperative vs. competitive Science: cooperative vs. competitive

allocationallocation Determined by physical characteristics of Determined by physical characteristics of

resource in questionresource in question Macro-allocation should be democratic, not Macro-allocation should be democratic, not

plutocraticplutocratic