Welfare Implications of the Allowable Cut Effect in the Context of Sustain Yield and Sustainable Development Forestry

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  • In 1972, Schweitzer et al. defined the allowable cut effect (ACE) as an \"...immediate increase in today's allowable cut which is attributable to expected future increases in (timber) yields.\" Having made this observation, the authors requested feedback on how the ACE should be considered in economic analysis. The debate which ensued may be characterized by two stages. The first stage, was generally made up of arguments against the inclusion of the ACE in investment analysis. ACE, it was argued, was yet anotehr reason for criticizing sustained yield policies. This view was dominant until a second stage emerged where McKillop (1979), followed by Blindley (1980) and Contreras and Gregorson (1982), suggested that the incentives provided by the ACE may be legitimate if viewed as part of a sustained yield policy which reflects social welfare. Furthermore, Binkley (1980) concluded that \"...if maximizing net worth is the objective of investments in timber production on the national forests (under even flow constraints), then their net benefits should be computed with the allowable cut effect\"; and that taking the ACE into account \"necessarily reduces the opportunity cost of the even flow constraint\" (Binkley 1980). The sting of anti-ACE arguments was further lessened when Binkley (1984) introduced a more generalized concept of ACE which was independent of even flow constraints and old growth forests. In this paper, it was concluded that ACEs arise from linkages of harvest levels between periods, and that: \"Valid economic analysis of forest management activities requires inclusion of the positive and negative changes in the optimal harvest schedule associated with allowable cut effects.\" The ideas presented in the second, or \"acceptance stage\" of the ACE literature apparently relieved the anxiety of those who expressed concern about ACE in the \"criticism stage.\" The issue seems to have died, as almost nothing has since beeen written on the welfare implications of the ACE. This is not to suggest that economic criticisms of sustained yield policies have not continued. Since the Brundtland report, forest policies have increasingly been assessed under the goals and objectives of sustainable development. In short, sustainable development seems to encapsulate two criticisms of sustained yield which had emerged long before the Brundtland report. First, the tendency for sustained yield policies to concentrate on volumes of fiber production has been challenged by a concept of sustainable development which encompasses values from many forest resources. Second, concepts of sustainable development recognize that providing for future generations does not necessarily imply that harvest of one forest resource over time must be constant, or non-declining. Instead the focus is on maintaining the production of a variety of goods and services from forests over time, which could imply that flows of certain types of natural resource quantities actually decrease in order to promote the sustenance of other resource values. The purpose of this paper is to re-assess the welfare implications of the ACE in the context of sustained yield and sustainable development forestry. Following Binkley (1980), this paper will analyze ACE from two perspectives. First, a \"Net Present Value (NPV) maximization perspective\" will be adopted. This approach represents the tact typically taken in cost benefit analyses where the objective is to maximize the discounted dollar values of a stream of goods and/or services, independent of the distribution of the benefits which investments create. Next, the effects of ACE will be assessed from a \"social welfare maximizing perspective.\" This view goes beyond looking at benefits in terms of dollar values and considers whether ACE will result in incentives which will maximize the aggregated utility of individual members of society. As will become evident in the following analysis, adopting differing perspectives allows us to \"...distinguish between an economic analysis of a forestry investment project within a given policy environment and economic analysis of the effects of the policies creating the environment\" (Contreras and Gregorson 1982).

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    Attribution-NonCommercial-NoDerivatives 3.0 International