SAF Policy, Economics & Administration 3 — Questions and Answers
Question 1: The Faustmann formula in forest economics determines the rotation age that maximizes:
- Mean annual increment of timber volume
- Land Expectation Value across an infinite series of rotations (Correct answer)
- Net present value of a single harvest
- Average annual profit from timber management
Correct answer: Land Expectation Value across an infinite series of rotations
The Faustmann formula calculates the Land Expectation Value (LEV) — the present value of bare forest land under an infinite series of optimal rotations.
Question 2: Which non-market valuation method estimates environmental values by analyzing how property prices vary with nearby environmental conditions?
- Contingent valuation
- Travel cost method
- Hedonic pricing (Correct answer)
- Benefit transfer
Correct answer: Hedonic pricing
Hedonic pricing uses variation in property or wage markets to reveal how much people implicitly pay for environmental amenities such as proximity to forests or clean air.
Question 3: In forest economics, 'existence value' refers to the value people place on a resource:
- Based solely on direct use such as hiking or hunting
- From knowing the resource exists even if they never use it (Correct answer)
- Derived from the potential to use it someday
- Based on its bequest value for future generations
Correct answer: From knowing the resource exists even if they never use it
Existence value (also called passive use value) is the value individuals derive simply from knowing that a resource exists, independent of any actual or planned use.
Question 4: Price elasticity of timber supply measures:
- The physical bending strength of harvested timber products
- How responsive the quantity of timber supplied is to changes in stumpage price (Correct answer)
- The range of timber species available across a given region
- The ability of forest soils to sustain repeated harvesting cycles
Correct answer: How responsive the quantity of timber supplied is to changes in stumpage price
Price elasticity of supply measures the percentage change in quantity supplied relative to the percentage change in price, indicating how sensitive timber markets are to price signals.
Question 5: Which type of externality most commonly results from private timber harvesting on steep slopes near streams?
- Positive production externality from increased local employment
- Negative externality from increased downstream sedimentation and water quality degradation (Correct answer)
- Positive consumption externality from improved scenic views after harvest
- Negative externality from reduced timber prices for competing landowners
Correct answer: Negative externality from increased downstream sedimentation and water quality degradation
Harvest-related road construction and soil disturbance on private lands frequently impose downstream sedimentation costs on water users who do not compensate landowners for them.
Question 6: Forest carbon offset programs typically require 'permanence buffers' because:
- Carbon accounting rules require a percentage be held in reserve to cover potential reversals from disturbance or harvest (Correct answer)
- Buffer zones around carbon forests must remain unmanaged for 100 years
- Buyers require a physical buffer of uncut forest around each project area
- Federal law mandates 20% of carbon credits be retired immediately upon issuance
Correct answer: Carbon accounting rules require a percentage be held in reserve to cover potential reversals from disturbance or harvest
Permanence buffers (or buffer pools) hold a percentage of credits in reserve to compensate for potential reversals if carbon is released through fire, disease, or other disturbances.
Question 7: The travel cost method estimates recreation values by assuming that:
- Recreation sites with higher admission fees provide greater economic value
- The cost of travel to a recreation site serves as a proxy for willingness to pay for access (Correct answer)
- Visitor surveys accurately capture the full economic value of recreation experiences
- Recreational value equals the market price of comparable commercial experiences
Correct answer: The cost of travel to a recreation site serves as a proxy for willingness to pay for access
The travel cost method uses observed expenditures — time, fuel, lodging — to reach a site as revealed preferences for willingness to pay for recreation access.
SAF Policy, Economics & Administration 3
The Faustmann formula in forest economics determines the rotation age that maximizes: