Topic 2: Economic Analysis for Forest Management

Background Information

Forest management draws from a variety of skills and disciplines of study. Foresters must combine knowledge from biology and other natural sciences, applied sciences, and social sciences such as economics. Economic concerns with how to efficiently allocate scarce resources among alternative uses brings a new set of tools and methods to the task of managing forests. As economic resources, forests can help produce goods and services that people want to consume. Usually there is more than one way in which a forest can be used, and people must choose how a forest will be managed, what goods and services will be produced, how much will be invested in enhancing growth or conservation, etc.

Economics of forest management deals with: choices about how forests are managed and used; how other factors of production, such as labor and capital, are used in forest production, utilization, and conservation; and what and how much forest products are produced and marketed. From among the many economics theories available, we select and introduce investment theory for investigations on how to reach optimal forest rotation.

Video Lectures

View the following video lectures:

4.2.1 An introduction of economics of forest resource management

4.2.2 Investment theory and forest resource management

4.2.3 Criteria for forest investment decision

4.2.4 Optimal forest rotation

4.2.5 Factors that affect the optimal rotation

Additional Resources

  1. (2015). Retrieved January 22, 2015, from
    This article explains some basic concepts and fundamental theories of economics.
  1. Adams, M., &Castaño, J. (2000). Proceedings of the International Conference on Timber Plantation Development‘00: World timber supply and demand scenario, government interventions, issues, and problems. Rome, Italy: FOA of the United Nations. Retrieved from
    This article provides a description of economic performance of timber production and its social and ecological impacts.
  1. Zhang, D.W.,&Pearse, P.H. (2011). Forest economics. Vancouver, BC: UBC Press.ISBN: 9780774821520
    This book is written for undergraduate students with diverse academic backgrounds who are interested in forest management, economics and policy. It will help forestry students understand the economic implications of their work as professional foresters, and will also help graduate students become forest economists. This book is divided into five parts. Part 3, “economics of forest management”, is especially relevant to topic 3.
  1. Wager, J.E.(2011). Forestry economics: A managerial approach.London: Routledge.ISBN: 9780415774765.
    This book takes an approach similar to Managerial Economics textbooks that are used in business schools at the undergraduate and graduate level. But this book addresses the unique production process and problems faced by managers of forests and other nature resource. This book consists of 12 chapters: introduction, production system, costs, revenue, profit, supply and demand, market equilibrium and structure, capital theory: investment theory, the forest rotation problem, capital theory: risk, forest taxes, and estimating nonmarket value.

Self-test for Topic 2

Reflection Questions:

  1. Can all forest resources be regarded as economic resources?
  2. How would you measure the value of time?
  3. What is the relationship between compounding and discounting?
  4. How would you transform discrete interest rate into continuous interest rate?
  5. How would you use the net present value method for forestry investment decisions?
  6. How would you use the benefit/cost ratio method for forestry investment decisions?
  7. How would you calculate optimal rotation age with this equation ? Mod4_Topic2_Self_Test_Equation1
  8. What is the Faustmann rotation problem?
  9. How will change of interest rate, reforestation cost, timber price, annual cost, tax or engagement of non-timber value affect optimal rotation age?

After formulating your answers, you may post them online at the Knowledge Café for this course as a way to share your ideas and glean knowledge from other students’ responses.