Protecting Timber Supply on Public Land in Response to Catastrophic Natural Disturbance: A Principal-Agent Problem

Abstract

Outside MemberManaging public forestland is a challenging enterprise as the government must steward the actions of private forest companies while simultaneously considering public values, natural disturbance, markets, revenue generation and environmental services.Governments use timber sales, volume-based, and area-based tenures to delegate forest harvesting activities to individual timber companies. By delegating forest management, government must wisely navigate the principal-agent relationship to avoid unexpected outcomes. However, the agents' response is often overlooked despite the likelihood that the agents may possess company-centric financial motivations.The British Columbia context, where the government is facing the aftermath of a catastrophic mountain pine beetle epidemic, provides a fruitful location for the study of the principal-agent dilemma. If forest companies share a future forest focus with the government, such that agents respond with actions that lead to the government's first best outcome, the government could reduce policy analysis to an examination of the tradeoff between short-term revenue generation and sustainable differentiated product supply. But review of the silviculture funding mechanism reveals that the very regulatory mechanism used to achieve government's results may affect the future forest estate by reducing the iv amount of salvage once the value of the forest is degraded below the cost to harvest and regenerate it. Relying primarily on harvest-based silviculture funding, the principal is shown to forego a 20 per cent increase in forest growth in the study area by not using the agents' forestry expertise to improve the long term productive potential of the forest.A bi-level linear programming model is developed to merge the goals of government with the behavioural responses of the two predominant volume-based tenures used in BC.Results show that the government's choice of harvest level, timber price and tenure instrument in recognition of agent response is the only way to achieve the government's forest stewardship objective. Treating each element in isolation neglects the nature of the institutional system and will result not only in unintended outcomes, but very likely, policy failure. v

Carbon Uptake and Forest Management under Uncertainty: Why Natural Disturbance Matters

“…Research by Canadian Forest Service foresters has widely assessed the potential role of Canada's (and even BC's) forests in climate change mitigation (Lemprière et al, 2013;Kurz et al, 2013;Smyth et al, 2014;Xu et al, 2017). The problem is that forest management studies on this scale often ignores economics -the costs of harvesting, slash removal, wildfire suppression, etc., and principal-agent problems when large numbers of stakeholders are involved (see Pyne, 2007;Bogle and Kooten, 2015;Boyland, 2006). It also fails to take into account natural disturbance and how to manage for it in the context of carbon sequestration.…”

FELLOWS ADDRESS California Dreaming: The Economics of Renewable Energy

“…Likewise, the tenure system prevents forests from being transferred to other uses, including agriculture, and restricts harvests; it also prescribes certain management practices and imposes fees that might discourage greater use of woody materials for bioenergy (Wang and van Kooten ). In particular, Bogle and van Kooten (, ) found that stumpage fees set by the public landowner (principal) to incentivize greater supply of biomass for energy from mountain pine beetle impacted timber were incompatible with the reality faced by logging companies (agents), thereby leading to a greater mix of unaffected trees in the final harvests.…”