The Infinitely Worried Forest Owner: Key Biotopes and Forest Certification in a Faustmann Model

CERE Working Paper, 2018:11

6 Pages Posted: 29 Jan 2019

See all articles by Bengt Kriström

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE)

Per-Olov Johansson

Stockholm School of Economics

Date Written: January 15, 2019

Abstract

In this note, we consider a case when a forestry property may lose its market value through “political risk”, illustrated here by it being classified as containing a key biotope. If a key biotope is found on a forest property in Sweden, the wood is almost impossible to sell. We show how the Faustmann formula is modified in this case and identify a “balance sheet” effect and document the incentive properties (the “kill an owl, save a logger” effect observed in the Spotted Owl controversy). The theory seems to have some empirical support, given observed changes in bank lending contracts and alleged changes in forester's behavior to reduce the ”political risk.”

Keywords: Faustmann model, Forest certification, Forest owner

JEL Classification: Q20, Q23

Suggested Citation

Kriström, Bengt and Johansson, Per-Olov, The Infinitely Worried Forest Owner: Key Biotopes and Forest Certification in a Faustmann Model (January 15, 2019). CERE Working Paper, 2018:11 . Available at SSRN: https://ssrn.com/abstract=3305615 or http://dx.doi.org/10.2139/ssrn.3305615

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE) ( email )

Umea, 901 83
Sweden
+46-(0)90-7865219 (Phone)

Per-Olov Johansson (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Stockholm
SWEDEN
+46 8 736 92 82 (Phone)
+46 8 30 21 15 (Fax)

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