chapter  7
28 Pages

Economic Efficiency in Forestry

Partly because the interval between initiation of a forestry plan or management program and the realization of its results is often very long-measured perhaps in decades, not merely in years-the way that time is taken into account in forest economic efficiency studies is extremely important. The usual way to include time is by use of the interest rate-an interest charge upon invested capital or upon capital which could be released by some other plan or program of management-or by the calculation of an internal rate of return from the forestry operation. But such a statement largely evades the real issue: How high should the interest rate used for such calculations be? For many forestry programs, the choice of the interest rate will affect the result more than any other single step-at 3 percent, many programs are profitable, while at 8 percent many of these will drop by the wayside. But use of interest charges, while basic, may not be adequate for handling time considerations in some forestry situations. Some private owners are unwilling to consider returns beyond some relatively short period, irrespective of the interest rate that could be earned, and some persons have argued that society should take an indefinitely long view of its forest management, again largely irrespective of interest rate.