In this paper, I analyze optimal royalty contracts in forestry when the harvesting firm has private information on the cost of harvesting. This infinite horizon forest rotation model with asymmetry of information on the cost parameter results in a dynamic incentive problem. Depending on whether the costs are correlated over time or not, the firm either receives rent or receives no rent, associated with the continuation part of the rotation choice. I characterize the optimal contract explicitly in both cases. I also examine the loss in expected welfare surplus resulting from the use of a linear contract instead of the more general non-linear contract.
This article uses the forest management problem under uncertainty to derive the optimal reservation price when a standing timber is to be auctioned. Theoretically, the resulting optimal reservation price that considers the harvesting decision is an extended version of Laffont and Maskin's and Riley and Samuelson's reservation price, which is suboptimal in the forestry context.
This chapter presents the theoretical framework of how society allocates scarce natural resources. We distinguish between the cases of nonrenewable resources and renewable resources. Nonrenewable resources differ from renewable resources because they have a fixed stock of reserves that, once removed, cannot be replaced. Extracting a unit of resource today means that a lower resource stock will be available for future extraction. For both renewable and nonrenewable resources, the economic analysis aims to determine (i) the flow of production over time and (ii) whether and when the resource stock will be depleted. In the case of nonrenewable resources, we present Hotelling’s theory of the mine as well as its extensions. In the case of renewable resources, we examine the derivation of Faustmann’s optimal rotation for even-aged forests. These building blocks will be used in the next chapter to test the dynamic efficiency of Cameroon’s resource management.
This chapter examines whether non-renewable resources are extracted and managed e-ciently in Cameroon. The analysis is performed by empirically evaluating the consistency between the theoretical extraction path dictated by the Hotelling model and its various extensions and the actual extraction path. We tested the dynamic e-ciency of the theoretical path of the main non-renewable resources produced in Cameroon. Based on the empirical evidence, the results showed that the basic Hotelling model, which incorporates technological progress for petroleum (the most important mineral produced in Cameroon) and natural gas is consistent with data. For all other minerals, the test was inconclusive or failed. The theoretical extraction model known as the Hotelling model cannot explain the evolution of the observed price path of these resources.
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