Application of optimal harvesting decision model to the analysis of Chinese forestry economic policy

Abstract

This paper firstly extends the single period forest optimal harvesting decision model to infinite periods, in order to indicate how to determine the optimal rotation period aimed at maximizing forest revenue in all directions when repeat planting and harvesting trees on the same plot of earth till infinite future. The study also analyzes the influence of discounted rates, timber price, harvesting costs, planting costs, and tax on the determination of optimal rotation period; and how the optimal rotation period will change when we introduce the factors of continuously rising timber price and ecological revenue. Secondly, the authors introduce the intergenerational equity principle into the above model to design a resource-exploiting mode which satisfies both the dynamic efficiency principle and the intergenerational equity principle. Last but not least, the research applies the above model to the analysis of Chinese forestry economic policy and explains the economic theory of institutions such as Government Purchasing Ecological Forest, Tree Compensation, and Forestry Subsidization, which provides a necessary theoretical foundation for future application of these new institutions. Besides, in regard to this theoretical framework, the authors analyze the necessity of the Natural Forest Protection and Grain for Green projects which are currently being implemented in China. We also point out the emphasis of work to insure the project sustainable and successful. Finally, the research discusses the enterprise’s incentive to over-the-quota harvesting and the government’s means of restricting such behavior, which highlights the fact that improved supervision and higher penalties are helpful in restricting over-the-quota harvesting.

Keywords:

• optimal rotation period
• intergenerational equity
• ecological forest purchase
• tree compensation
• forestry subsidy