Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2018:11: The Infinitely Worried Forest Owner: Key Biotopes and Forest Certification in a Faustmann Model

Bengt Per-Olov Kriström () and Per-Olov Johansson ()
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Bengt Per-Olov Kriström: Skogsekonomi, SLU
Per-Olov Johansson: Stockholm School of Economics

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-codes: Q20; Q23

6 pages, December 18, 2018

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