Market, timber pricing, and forest management

Some resource economists and policy-makers believe that market mechanisms in general and timber pricing through auctions specifically are the only solutions for forest management in Canada. In this paper, simple economic concepts of market, economic efficiency, and social optimality are discussed, and the specific features of forest resources and sustainable forest management and their implications for optimal resource allocation through the market are highlighted. Economic theory behind competitive timber pricing in two geographical regions is presented to demonstrate that in a competitive setting, the prices of timber need not be the same in the two regions. Timber pricing mechanisms used by different countries are summarized, and auctions, their limitations, and some important outcomes of timber auctions by the United States Forest Service are discussed. Market performances of residual value and auction-based timber pricing are compared. On the basis of these discussions, it is inferred that sustainable forest management cannot be achieved either by the market or by government-controlled mechanisms only. An optimal-mix of the market and government-controlled mechanisms is the only answer to achieve sustainable forest management.