Metla Project 3318

Economic-ecological interactions in sustainable use of forest resources

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Duration: 2001-2006   Keywords: forest economics, optimal rotation, optimal thinning, optimal vintage
Research Programme: Alternatives of silvicultural practices in forest management and their effects on forest production


This project belongs to natural resource and environmental economics. It has two aims: first to apply a detailed process based ecological model with economic stand level optimization and second, to solve the problem of long run equilibrium in multiple age class forestry models.

Stand level economic optimization models apply ecological models of varying number of details. These models are typically complex and are solved by numerical optimization. The results describe optimal strategies for stand density, thinnigs and rotation. Optimality refers to the aim of obtaining a maximum level of present value income from forestry. The aim was to develop models of varying degree of details and to proceed toward using a process based forest model that has been developed at the University of Helsinki, Department of Forest Ecology over 20 years of work. This model is based on detailed models and theories of photosynthesis and tree structure and due to its complexities it has not been used earlier together with economic optimization.


In this project were developed four different models for stand level economic analysis. Especially, combining the process based model and economics turned out to be useful. The high number of details in the model (18 000 state variables) were utilized in describing the connections between forest management activities and timber quality. Timber quality is economically important and the results of the model are easy to interpret compared to earlier models that use statistical models for forest growth. Optimization applies millions of different forest management activity combinations and reveals possible misspecifications and other problems in the utilized ecological model.

During the work the ecologists were forced to reformulate and correct their model several times. The cooperation between economists, ecologists, mathematicians and forest scientists were intensive and without any major communication problems. The results of these models were compared with the Finnish silvicultural recommendations by the forestry extensive organization Tapio and with the silvicultural restrictions in the Finnish forestry legislation. This comparison revels that Finnish forest policy is oriented toward maximizing output measured in cubic meters instead of economic aims. One of our study shows that this may lead to major economic losses. This was reported to the Finnish state auditors in a separate study. The discussion on these problems led to reformulation of Finnish silvicultural guidelines and Finnish forestry legislation. The new guidelines and legislation now allows forest owners to choose thinnings and rotation period that more clearly yield positive net present value forest income level.

The second aim of the project was to solve the problem of long run equilibrium in forestry age class models with endogenous timber price. This question is essential in understanding the properties of sustainable forestry in a free market system. A number of attempts to solve this problem has been published by all of them simplify the original problem in some essential way implying that the problem has remained unsolvable. The project approaches the problem using a different theorem in mathematical optimization than earlier researches and it was possible to solve the problem analytically. In addition, it was developed a numerical algorithm for the theoretically correct solution. Results show that the earlier understanding that the equilibrium typically contains cycles is based on describing time in discrete units. The prototype model was extended to various directions. The stochastic version shows that single age class one stand stochastic Faustmann models are overly restrictive especially when the forest owner has risk aversion.

From the practical point of view this part of the project gives a sound basis for the view that competitive timber markets yield sustainable forestry and that privately profitable forestry does not imply any major deviations from the point of view of social welfare and efficient use of resources. This is against the present understanding included in the Finnish forestry legislation and forest policy.

Project leader: Tahvonen, Olli

Other researchers: Cao, Tianjian (2002-04), Hyytiäinen, Kari, VA (2002-06), Jämsä, Jari, VA (2002), Peltoniemi, Mikko, VA (2004), Taipale, Juhani (2002-04), Viitala, Esa-Jussi, VA (2002-06)

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Updated 12.06.2012