Economics of Appropriate Scale
Determining the appropriate scale of vegetation treatments is essential for a robust economic analysis of a restoration project. To clarify the meaning in this context, scale is the quantity of an economic activity. For commercial harvest in a Proposed Action, the term means the acres allocated to a treatment that produces logs with a commercial value. The appropriate scale is a question discussed in collaborative groups,
including the Payette Forest Coalition. Some stakeholders participate in collaboration because they are committed to economic stability of the community. Other stakeholders view commercial harvest as a concession to conservation objectives. The underlying assumption in this discussion is a zone of agreement between the opposing views: the commitment to the Ecosystem Restoration Policy. The harvest treatments must provide an ecological benefit. The financial and economic benefits are important and necessary, but they are not sufficient in the absence of an ecological benefit. The vegetation conditions post treatment, aggregated across the project area, must contribute to a more resilient landscape with the capacity to sustain ecological functions.
Given the underlying commitment to an ecological benefit, three relevant economic issues should be addressed in project evaluation:
- Equitable Distribution of Benefits: Compare the scale of commercial harvest to the traditional harvest constraints of forest regulation .
- Efficient Allocation: Estimate the opportunity cost of retaining periodic growth.
- Appropriate Scale: Apply the "when to stop" rule of marginal analysis.
Distribution of Benefits
In a previously published article, the management construct of forest regulation was described (see Stories of Spatial Interest, April 7, 2017). The target regulated condition has changed for the Agency from one designed to sustain the periodic yield of timber to a condition that sustains a resilient landscape structure. However, a simple check of proposed harvest treatments to a sustained yield of timber as a commodity is worthwhile. Does the Proposed Action compromise the sustained harvest of timber as a result of the project? In other words, does the project short-change the future by excessive harvest in the present? This is an economic question regarding the future distribution of commodity goods produced by the forest.
The inset (click to enlarge) is a chart format comparison of the periodic growth increment harvested and growth increment retained for the LCBC project. In this example, the chart locates the growth-harvest relationship for the Proposed Action (B) and the three action alternatives (C,D, E). If the harvested volume from the Alternative equals the growth increment, the data point on the chart would then be positioned on the y-axis at the value 100%. If all growth were retained (No Action Alternative), the data point would be positioned on the x-axis at 100%. The four action alternatives for LCBC are displayed on the chart, each with a harvest level less than 50% of the periodic growth; the respective data points are positioned to the lower right of the chart's line. With respect to traditional forest regulation for growth and yield, all action alternatives will not compromise potential future harvests.
The chart also displays the growth retained. There are a variety of valid reasons that harvest ought to be less than growth in the project area, including the potential impact on other ecosystem services. The growth retained does have a market value, and an analyst can estimate the market value. The dollar value of growth retained is opportunity cost: the commodity production not realized and restoration finance foregone. The growth retained and not harvested could be offered as additional volume in a timber sale. The sale of the timber and subsequent conversion to wood products in local mills would increase the economic activity for the community. Depending on the quantity, the difference would impact jobs and income. The second aspect of opportunity cost is the potential to increase timber receipts that could be retained locally to finance other restoration actions. The retained receipts represent private sources of restoration finance that share in project costs with the pubic finance source of tax dollars. Does the allocation of stands to harvest treatments represent an efficient allocation for the purpose of restoration finance?
Appropriate Scale or When to Stop
Economists evaluate the appropriate scale of an activity by the use of marginal analysis. Operating at the margin is an expression that can confuse the public. Rather than implying the activity is barely of benefit, the analytical method can lead to an allocation that maximizes benefits. In a forest restoration project that addresses the fuel load capacity constraint, the analyst asks the question - can the Line Officer allocate additional acres to commercial harvest without incurring costs that consume the stumpage revenue? The chart displays this concept for the LCBC restoration project (click on inset to view a hypothetical example of the relationship).
The x-axis represents the cumulative acres treated; the y-axis is an estimate of the timber receipts from a stumpage sale. The line in the chart displays the relationship between the acres treated and the receipts from timber sold. Note that the chart is not a straight line. Stands will vary in the variables affecting timber sale revenue: volume per acre suitable for harvest, total acres of the stand, species composition, log size, harvest and hauling costs, potential costs to mitigate negative impacts of the operation. For the LCBC proposed action, approximately 12,000 acres were allocated to commercial harvest Stands acres are sequenced in the cumulative chart from those with the highest revenue potential (left) to those acres with the lowest revenue potential. For this reason, the cumulative chart reaches a plataeu because the revenue increment decreases for stands contributing the least amount.
When should the Line Officer cease adding acres to commercial harvest? Continue adding suitable stands to the harvest schedule until the restoration objective is compromised by higher costs, including costs to mitigate the environmental effects of the treatment. At the margin, the timber revenue from allocating one additional stand will be consumed by costs associated with the additional treatment.