Abstract
Market-based mechanisms are needed to transfer the moral ownership of forests to private individuals so as to encourage sustainable land use and hunting practices, and to assure local populations of the consequent benefits. This chapter develops and demonstrates the use of a real option model to encourage the plantation of new, biologically diverse forests, and to help preserve existing forests standing on private land. Retaining the option to harvest encourages cultivation of forest stands on private lands, and periodical purchases of the option keep the stand intact, thus contributing to a greater good. Each period, the “option to harvest” is bought out by timber suppliers, with a view to preventing potentially steep declines in spot timber prices from excess supply, or by other agencies, namely, conservationists with an interest in keeping the stand intact. The incentive structure is simplified to include the interest foregone on the terminal value, less the nonconsumptive and existential value derived from such delay.
The real-option model employing bounded random walk projections is applied to a registered CDM project and two counterfactual scenarios developed: The break-even option premiums are found to be 6.57 and 3.84 %, respectively, of the previous year’s market value of timber for a base-case discount rate of 10 %. Suggestions are offered on institutional structures to help transfer such option premiums from the agents who harvest their stand to those who choose not to.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsNotes
- 1.
http://eaindustry.nic.in; weekly price index data from April 2005 to December 2010.
- 2.
The Faustmann value is obtained by maximizing the present value of the income stream from the harvest decision: the decision to cut is made when the incremental value derived is greater than the interest cost on the forested land.
- 3.
k could alternatively be viewed as the cost of procuring additional information and expertise, over and above the (lowest in industry) costs incurred by the best informed landowners.
- 4.
Project 2345 : Small Scale Cooperative Afforestation CDM Pilot Project Activity on Private Lands Affected by Shifting Sand Dunes in Sirsa, Haryana; Registered March 2009; http://cdm.unfccc.int/Projects/DB/TUEV-SUED1229620290.53/view
- 5.
Subject to lengths, average girths or logs, and country of origin, prices range between USD 300 and 850/m3.
- 6.
- 7.
- 8.
For instance, India consumed about 17 million cubic meters of timber in 2008, and approximately 70% of this consumption was met through imports (Acharya 2010).
References
Acharya N (2010) Timber imports 10% costlier on rising freight rate, demand. Business Standard, 9 Mar 2010
Aiyar SA (2005) Farm chirus, save shahtoosh. The Times of India, 11 Sept 2005. http://swaminomics.org/?p=416
Allen BP, Loomis JB (2006) Deriving values for the ecological support function of wildlife: an indirect valuation approach. Ecol Econ 56:49–57
Bartczak A, Lindhjem H, Navrud S, Zandersen M, Zylicz T (2008) Valuing forest recreation on the national level in a transition economy: the case of Poland. Forest Policy Econ 10((7–8)):467–472
Becker N, Freeman S (2009) The economic value of old growth trees in Israel. Forest Policy Econ 11(8):608–615
Bigsby H (2009) Carbon banking: creating flexibility for forest owners. Forest Ecol Manag 257(1):378–383
Block B (2009) Coffee sales helping chimpanzees, Goodall says. Eye on Earth. WorldWatch Institute, Washington, DC, 24 Mar 2009
Chladna Z (2007) Determination of optimal rotation period under stochastic wood and carbon prices. Forest Policy Econ 9(8):1031–1045
Chopra K (1993) The value of non-timber forest products: an estimation for tropical deciduous forests in India. Econ Bot 47(3):251–257. The New York Botanical Garden, USA
Coase Ronald RH (1960) The problem of social cost. J Law Econ 3
Conrad Jon M (1997) On the option value of old-growth forest. Ecol Econ 22(2):97–102
Duku-Kaakyire A, Nanang David M (2004) Application of real options theory to forestry investment analysis. Forest Policy Econ 6(6):539–552
Economist (2008a) The Amazon: tread softly. The Economist Print Edition, 28 Aug 2008
Economist (2008b) Green.View: staying the courser. The Economist Print Edition, 28 July 2008
Economist (2008c) The price of conservation: the unkindest cut. The Economist Print Edition, 14 Feb 2008
Economist (2009a) Climate change and forests: touch wood. The Economist Print Edition, 17 Dec 2009
Economist (2009b) Science and technology: paying to save trees. The Economist (Print Edition), 24 Sept 2009
Galatowitsch SM (2009) Carbon offsets as ecological restorations. Restor Ecol 17(5):563–570
Gjolberg O, Guttormsen AG (2002) Real options in the forest: what if prices are mean-reverting? Forest Policy Econ 4(1):13–20
Globalwood (2011) http://globalwood.org/market/market.htm. Accessed 21 July 2011
Green Car Congress (2011) New Toyota afforestation project for China, 26 Aug 2011. http://www.greencarcongress.com/2011/08/tmc-20110826.html
Hamilton JD (2008) Understanding crude oil prices. NBER working paper no. 14492. National Bureau of Economic Research, Cambridge
Hilton FG (2006) Poverty and pollution abatement: evidence from lead phase-out. Ecol Econ 56(2006):125–131
Joshi S, Arano KG (2009) Determinants of private forest management decisions: a study on West Virginia NIPF landowners. Forest Policy Econ 11(2):118–125
Juutinen A, Mäntymaa E, Mönkkönen M, Svento R (2008) Voluntary agreements in protecting privately owned forests in Finland – to buy or to lease. Forest Policy Econ 10(4):230–239
Karky BS, Skutsch M (2010) The cost of carbon abatement through community forest management in Nepal Himalaya. Ecol Econ 69:666–672
Lee C-C, Lee J-D (2009) Income and CO2 emissions: evidence from panel unit root and cointegration tests. Energy Policy 37(2):413–423
Locatelli B, Rojas V, Salinas Z (2008) Impacts of payments for environmental services on local development in Northern Costa Rica: a fuzzy multi-criteria analysis. Forest Policy Econ 10(5):275–285
Manley B, Niquidet K (2010) What is the relevance of option pricing for forest valuation in New Zealand? Forest Policy Econ 12(4):299–307
Mathey A, Helene NH, Gaston C (2009) The economics of timber supply: does it pay to reduce harvest levels? Forest Policy Econ 11(7):491–497
Myers N (1997) The world’s forests and their ecosystem services. In: Daily GC (ed) Nature’s services: societal dependence on natural ecosystems. Island Press, Washington, DC, p 229
Naidoo R, Ricketts TH (2006) Mapping the economic costs and benefits of conservation. PLoS Biol 4(11):2153–2164
Pallavi A (2011) Wind farm threat to forests. Down to Earth, 15 Feb 2011
Pearce DW (1993) Blueprint 3: measuring sustainable development. Earthscan, London
Rocha K, Moreira Ajax RB, Reis Eustaquio J, Carvalho L (2006) The market value of forest concessions in the Brazilian Amazon: a real option approach. Forest Policy Econ 8(2):149–160
Russo RO, Candela G (2006) Payment of environmental services in Costa Rica: evaluating impact and possibilities. Tierra Trop 2(1):1–13
Schatzki T (2003) Options, uncertainty and sunk costs: an empirical analysis of land use change. J Environ Econ Manage 46(1):86–105
Simpson David R (1997) Biodiversity prospecting: shopping the wilds is not the key to conservation. Resources 126(Winter):12–15
Sood Kamal K, Mitchell Paul C (2009) Role of foresters’ perspectives in orienting agroforestry programmes. Forest Policy Econ 11(4):213–220
Srinivasan S (2011) Optimal pricing instruments for emission reduction certificates. Environ Sci Policy 14:569–577
Tacconi L (2012) Redefining payments for environmental services. Ecol Econ 73:29–36
Tewari DD (2006) The effectiveness of state forest development corporations in India: an institutional analysis. Forest Policy Econ 8(3):279–300
Zbinden S, Lee DR (2005) Paying for environmental services: an analysis of participation in Costa Rica’s PSA program. World Dev 33(2):255–272
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2013 Springer India
About this chapter
Cite this chapter
Sunderasan, S. (2013). Giving Local People a Cause to Keep Their Trees Standing. In: Enabling Environment. Springer, India. https://doi.org/10.1007/978-81-322-0882-2_7
Download citation
DOI: https://doi.org/10.1007/978-81-322-0882-2_7
Published:
Publisher Name: Springer, India
Print ISBN: 978-81-322-0881-5
Online ISBN: 978-81-322-0882-2
eBook Packages: Business and EconomicsEconomics and Finance (R0)