FOR 451 ( FOREST RESOURCE FOR 451 ( FOREST RESOURCE ECONOMICS & QUANTITATIVE ANALYSIS)ECONOMICS & QUANTITATIVE ANALYSIS)

SPRING 2009SPRING 2009

INTRODUCTION

General ObjectivesGeneral Objectives

After taking FOR 451, students should have developed:

• the ability to integrate economic & forestry principles, apply these in identifying & specifying problems in forest resource management & use

• problem-solving skills & critical thinking in forestry, enabling you to apply mathematical & statistical models to find solutions of managerial problems

• an awareness of forestry's contributions, including understanding of the impacts of economic factors on the use & management of forests on the local and regional levels

FOR 451FOR 451SYLLABUS

• outline of what is expected from course• accommodates other timely topics relevant to topics in discussed in class

COURSELECTURE/DISCUSSION• lecture-discussion-recitation type• questions encouraged

LAB• exercises and designed reports required• development of written communication skills

EXAMS & QUIZZES & GRADING• 3 one-hour exams, lecture period & comprehensive final exam• quizzes – DECIDE DAY!• grades: based on exams, quizzes, lab, finals, and class participation

READING ASSIGNMENTS• come to class prepared to discuss assigned chapters/readings; • Textbook & Course Packet of Materials – available at ISU Book Store.

Course ObjectivesCourse ObjectivesExpectations, Outcomes

• intended for students who have a fair idea of forestry & what economics is

• opportunity to integrate economic and forestry principles

• devt. of basic econ. skills important for professional success in your area

– economics applied to silviculture, management, administration, products, conservation, etc.

• devt. of problem-solving skills and critical thinking in forestry/natural res.

– today's reality: complex & issue-laden, value-laden problems

– example: ancient forests and spotted owl issues; forest fires, NPS pollution, privatization, endangered species

• devt. of awareness of forestry's contributions (economics), including understanding impacts of economic factors on the use and mgmt. of forest resources on the local, regional, or international levels

Some TermsSome Terms• ECONOMICS = social science dealing with allocating scarce resources

among competing means to satisfy human wants. (Greek origin, original meaning "household management").

– Keywords: scarcity, resources, human wants.

– Economic problem: who gets what, when and how much (production, allocation of goods to meet needs; the concept of scarcity relates to this allocation/economic problem;

– D (wants) > S (resource); wants not always same needs

• FORESTRY = managing of people to accomplish forest-related results.

– (Forest = natural stand; Forestry = forest + people + other res.)

FORESTRY ECONOMICSFORESTRY ECONOMICS = application of economic = application of economic principles to the production of all goods & services from principles to the production of all goods & services from forests to meet stated or implicit goals.forests to meet stated or implicit goals.

• Economics - study of humankind in the ordinary business of life.

• Subject of economics: resource allocation among competing uses.

• Forests/outputs are resources upon which values need to be assigned in order to reach allocation decisions. Its ultimate goal is to formulate policies to attain goals (a political process)

• Economics is important in decision making in forestry, e.g., what you can do, how to do it, when to do it, and for whom.

• Economic analysis: helps clarify values of various alternatives, identify tradeoffs, and thus helps a manager make better decisions.

The Forest as a Resource: CharacteristicsThe Forest as a Resource: Characteristics

1. Immobility of standing timber = forest is fixed in space, sold on site (stumpage).

2. Long production period = rotations (production is in years, dictates final product); & time preferences (individual vs society)

3. Dual nature of standing timber = factory & product at same time.• Cutting tree (final product) means cutting off/destroying factory.

4. One-way flexibility over time = tree sold in different forms over time; can’t go back in time

5. Derived demand for timber = timber demanded for products producible from it

6. Externalities = unintended by-products of an economic process; negative/positive externalities or disincentives/incentives

7. Public rights vs Private rights = amenities vs property rights

8. Mixed ownership of commercial forest lands: A mixed economy: private & public.

Economics as a way of thinkingEconomics as a way of thinking • Helps us make intelligent decisions.

• Points to several alternatives for comparison.

• Clarifies tradeoffs

• Organizes thoughts in determining best option.

– Inputs, basis, measures, outputs

– Ex: statement by Aldo Leopold (ethical & economic) wild things taken for granted until progress started to do away with them. Now the big Question:

• Higher standard of living worth its cost in things wild and natural and free?

• Higher cost of living = cost of natural wild things?

• ECONOMIC ANALYSIS IN FORESTRY:

• Questions: what? when? where? how? should we do it? how long should we do it?

– Example: Production Function – input-output relationship

• Economic analysis should be able to:

– show all facts of economic nature needed to make wise decisions

– identify costs & benefits.

• FOR 451 deals with production economics (or positive economics)

– concerns with understanding and predicting economic behavior.

– purpose of positive economics is to explain.

Use of Economic ModelsUse of Economic Models

• In analyzing economic problems, it is often impossible to consider all economic variables involved.

• Purpose of econ. analysis: to produce a realistic picture of situation– often necessary to abstract from reality– consider only key variables in the situation and examine interrelationships. – model-building

• Decision making involves choices or alternatives. – Problem identification is first step. – Suitable models may be used, representing only important economic

variables– Also involves evaluation of output data and the suitability and form of the

model– Use of a set of criteria to select best alternative course of action.

Use of Economic ModelsUse of Economic Models

• Examples of models: demand, supply, production functions

– Forms: graphs, analog models, mathematical models

– Example – market demand for a wood product

• In what context do we value forest resources? economic, social, cultural, political, etc.

ModelsModels

• Abstraction of reality

• Simplify complex systems

• Show important relationships among relevant components

• Require assumptions

• Accuracy vs. practicality (GIGO)

Forestry’s economic perspectiveForestry’s economic perspective

• Private vs Public

• Goals profit max vs service

• Limited range of choices

– Produce what the resource is capable of growing

– Constrained by laws & regulations & ethics

– Produce what the buyer wants

– Investment on land

• Decision (economic questions):

– What, how much, how, who, where.

ResourcesResources• Resources = bundles of attributes upon which we place values

• Economic resources = in limited supply, can be combined with others to produce goods & services wanted by consumers

• Forest as a resource:

– Production

– Protection

– Social Services

– Involves high capital and high carrying costs of production ethics

• Economic activity in forestry: series & process of decision-making

– Production, allocation

– Mixed capitalism

Decision-making modelDecision-making model

• Define problem

• Determine goals & objectives

• Gather data/info

• Develop alternatives

• Set of criteria

• Evaluate alternatives – values, tradeoffs

• Choose and implement best alternative

• Feedback, monitoring

Elasticity and marginal analysisElasticity and marginal analysis

• Elasticity

• Utility

• Marginal utility

• Diminishing marginal utility

• Diminishing returns

• Equimarginal principle

Forestry statisticsForestry statistics

• US:

– 1630: 46% (1045 million ac)

– 1907: 34% (759 million ac)

– 1997: 33% forests (747 million ac)

– 2002: 33% forested (749 million ac)

• Iowa’s latest forestry stats

– 2.7 million acres (~ 7.6 %]

• Iowa’s latest forestry stats

– 2.7 million acres [(2.7mil ac / 35.756 mil ac) x 100% = 7.55%]

• Chapter 13 – for Friday