| The problems of applying benefit-cost analysis (BCA) to forestry investment decisions are studied with emphasis on the evaluation of non-timber products and the choice of the discount rate.;The joint nature of forestry products, particularly the lack of knowledge of their real nature and production functions, the long period of production and difficulties in the choice of the appropriate discount rate have been identified as the major impediments in use of BCA.;Six nontimber products have been studied and it is concluded that they are not always externalities, as often taken for granted, but sometimes public goods, public good externalities or simply common private goods. In the presence of these features the market prices of the forestry products, even if existent, are not adequate for use in BCA. The ways of handling these situations have been studied and described. It has been pointed out that if some of the products are public goods a positive price should be charged only if governments have no better ways of raising revenue but the value of the public goods should always be included in BCA. Most of the public good forestry products, however, are either intermediate in nature and so their social value may be derivable from the prices of the final goods they produce or are location specific so that the demand for the location is measurable.;Various solutions to externality problems have been examined and it concluded that the most promising one is that of taxing or subsidising, but for its correct application it is crucial to know the exact stage in the production process where the external effects are created. Tax-subsidy solution in forestry always leads the equilibrium to move in the right direction when forests are owned by monopolists, a situation not uncommon in state-owned forestry.;Being long term, forestry projects are very sensitive to the discount rate used and, therefore, this parameter has to be carefully chosen. Due to theoretical and practical reasons the social rate of discount (SRD) cannot be derived directly or even indirectly through either the market interest rates or the opportunity cost of capital. It has to be politically determined, hopefully by an iterative process using the known capital-output ratio and the desired growth rate. It has been concluded that using a lower discount rate in forestry than in other public projects because of their possible strategic value, long term nature, lack of risk, and presence of externalities in them is not justified. . . . (Author's abstract exceeds stipulated maximum length. Discontinued here with permission of author.) UMI. |
