Dose-Response and Productivity Approach to Forest Valuation

Transcription

1 Workshop on Forest Investment Profitability, Nancy, September 23, 2013 Dose-Response and Productivity Approach to Forest Valuation Stéphane Couture* *Applied Mathematics and Computer Science laboratory, INRA-MIAT, Toulouse, France Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 1 / 18

2 Outline 1 Introduction 2 Objective 3 Review of literature on forest valuation using the dose-response method 4 The dose-response method: definition and principles 5 The dose-response method in practice 6 An example to illustrate the method 7 Conclusion Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 2 / 18

3 Introduction Forest valuation Forests provide a wide range of goods and services that are important to society. These different goods and services depend on forest management as well as on land use changes. It is important to identify and then to correctly estimate these different goods and services. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 3 / 18

4 Introduction Forest valuation Forests provide a wide range of goods and services that are important to society. These different goods and services depend on forest management as well as on land use changes. It is important to identify and then to correctly estimate these different goods and services. Timber valuation, non-timber forest benefits and land use options Large literature Good examples of forest valuation can now be found for all types of forest benefits and for most of the valuation methods that exist in the literature. An exhaustive list of the different methods that would be useful for valuating the different goods and services of forest. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 3 / 18

5 Introduction Valuation methods Various methods have been developed to estimate the total economic value of forests, including both market and non-market benefits. These include valuations using market prices, surrogate market approaches, the production function method, and stated preference and cost-based techniques. Each method has its strengths and weaknesses. Valuation methods are particularly useful for extending the scope of cost-benefit analysis in order to include non-market environmental impacts in the assessment of forest management practices or forest land uses. Certain methods are better suited to particular forest goods and services. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 4 / 18

6 Introduction Table: Environmental degradation and economic valuation for forest goods and services Natural resources Impacts Methods Forest and protected areas Loss of green areas Dose-response approach (deforestation) Replacement cost Hedonic prices Travel cost Contingent valuation Water resources Water resource depletion Dose-response approach Replacement cost Hedonic prices Contingent valuation Biodiversity Biodiversity loss Hedonic prices Travel cost Contingent valuation Source: adapted from Bolt, Ruta and Sarraf (2005). Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 5 / 18

7 Introduction Table: Classification of economic valuation methods Methods based on people s Methods based on physical behavior relationships Revealed preferences Stated preferences Dose-response approach Travel cost Contingent valuation Production cost Hedonic pricing Choice modelling Production factor Aversion and preventive Pairwise allocation behaviour game Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 6 / 18

8 Introduction Table: Classification of economic valuation methods Methods based on people s Methods based on physical behavior relationships Revealed preferences Stated preferences Dose-response approach Travel cost Contingent valuation Production cost Hedonic pricing Choice modelling Production factor Aversion and preventive Pairwise allocation behaviour game The dose-response method = the change-in-production approach = the input-output approach = the production function approach. Regardless of the name used, all of them involve an attempt to link the incremental output of a good or service to a measurable change in the quality or quantity of a natural resource. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 6 / 18

9 Objective of the paper Objective of the paper The objective of this paper is to briefly present the dose-response approach and its application to forest valuation. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 7 / 18

10 Objective of the paper Objective of the paper The objective of this paper is to briefly present the dose-response approach and its application to forest valuation. This paper aims at describing the different steps necessary for implementing such an approach. Two-step procedure. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 7 / 18

11 Objective of the paper Objective of the paper The objective of this paper is to briefly present the dose-response approach and its application to forest valuation. This paper aims at describing the different steps necessary for implementing such an approach. Two-step procedure. One example of application to forest valuation is given to illustrate the interest of this approach. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 7 / 18

12 Review of literature Review of literature It would be difficult and even impossible to make a review of the literature on forest valuation using the dose-response method for two reasons. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 8 / 18

13 Review of literature Review of literature It would be difficult and even impossible to make a review of the literature on forest valuation using the dose-response method for two reasons. First reason Some works dealing with forest management or land cover that assess the value of forest timber or some non-market but quantitative goods and services apply the dose-response approach without explicitly mentioning it, making an exhaustive literature review impossible. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 8 / 18

14 Review of literature Review of literature It would be difficult and even impossible to make a review of the literature on forest valuation using the dose-response method for two reasons. First reason Some works dealing with forest management or land cover that assess the value of forest timber or some non-market but quantitative goods and services apply the dose-response approach without explicitly mentioning it, making an exhaustive literature review impossible. Second reason Few applications of the dose-response approach for valuating most non-market forest goods and services exist (see the report of Verkerk and Lindner, 2011, about the dose-response functions for the main forest externalities; the paper of Elsasser et al., 2009, about a database on forest benefit valuation studies). Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 8 / 18

15 Principles of the dose-response method An example in the case of forest valuation The biomass of the forest is typically given as a function of the age of the forest. In this case, the dose-response function provides the total amount of wood produced for any harvesting date. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 9 / 18

16 Principles of the dose-response method An example in the case of forest valuation The biomass of the forest is typically given as a function of the age of the forest. In this case, the dose-response function provides the total amount of wood produced for any harvesting date. Definition It is a valuation method of a good or service based on the knowledge of a physical relationship between a factor that has an impact on the concerned good or service and the good and service in question. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 9 / 18

17 Principles of the dose-response method An example in the case of forest valuation The biomass of the forest is typically given as a function of the age of the forest. In this case, the dose-response function provides the total amount of wood produced for any harvesting date. Definition It is a valuation method of a good or service based on the knowledge of a physical relationship between a factor that has an impact on the concerned good or service and the good and service in question. Principle The approach requires the knowledge and the quantitative representation of such a relationship, which is generally represented by some manner of mathematical function. This function thus describes and expresses this underlying technological, physical or biological process, linking the maximum output obtainable at the existing state of knowledge, to the given amounts of factor inputs. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 9 / 18

18 Practice Two-step approach: First step: determining the physical impact of the relationship being studied. It is then fundamental to have precise and accurate information about the biological or physical relationship available data: concrete or simulated data. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 10 / 18

19 Practice Two-step approach: First step: determining the physical impact of the relationship being studied. It is then fundamental to have precise and accurate information about the biological or physical relationship available data: concrete or simulated data. Second step: determining the economic repercussions of this physical impact. It depends only on the availability and observability of information about the monetary values attached to the physical impact. Lower bound estimate of the value. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 10 / 18

20 Example One example: timber production and growth function Problem set: to valuate timber production for maritime pine in southwestern France (Aquitaine region)= to define and estimate the growth process of the stand. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 11 / 18

21 Example One example: timber production and growth function Problem set: to valuate timber production for maritime pine in southwestern France (Aquitaine region)= to define and estimate the growth process of the stand. Solution: Timber production is generally defined by a growth function that describes the growth process over time. Available data: Table: Data from production table of maritime pine in Aquitaine, fertility class 3. (Vannière, 1984). Year Production in m 3 /ha Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 11 / 18

22 Example Specification: We assumed that the growth process could be approximated by a logistic function. The specification selected for the logistic function is the following one: g(t) = a 1+b e c t where g(.) is the stand volume, t the age, and a,b, and c the equation parameters. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 12 / 18

23 Example Specification: We assumed that the growth process could be approximated by a logistic function. The specification selected for the logistic function is the following one: g(t) = a 1+b e c t where g(.) is the stand volume, t the age, and a,b, and c the equation parameters. Results of estimation The resulting estimated function is: g(t) = e t where t is the age of the stand (the number of observations is 11; and the R 2 coefficient is equal to ). Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 12 / 18

24 Example Results: comparison between initial data and estimated function The volume of timber production depending on the age of the stand, estimated by a logistic function. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 13 / 18

25 Conclusion Conclusion The dose-response method is a valuation method that differs from the traditional valuation methods in the sense that it does not use or refer to individual preferences. As a result, this approach does not indicate willingness to pay or accept compensation. This approach is not based on market values, but instead consists in establishing a link between an environmental phenomenon and its effects. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 14 / 18

26 Conclusion Conclusion This is basically a technique that measures the effect (response) caused by change in the environment (dose). This approach estimates the physical impact of a change in input on an output. The dose-response technique can be seen as the most straightforward way of valuing forests and environmental changes since the approach is about observing physical changes in the environment and estimating what differences they will make to the value of goods and services. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 15 / 18

27 Conclusion Advantages of the dose-response method Objectivity Use for a wide range of valuation problems Important element of several of the valuation approaches Application straightforward in the case of a single-use system Ease of explanation and justification Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 16 / 18

28 Conclusion Advantages of the dose-response method Objectivity Use for a wide range of valuation problems Important element of several of the valuation approaches Application straightforward in the case of a single-use system Ease of explanation and justification Limits of the dose-response method Explicit modelling: a multidisciplinary work Restrictive assumptions about the physical system Data-intensive Application more complicated with multiple systems Sensitive to the statistical method Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 16 / 18

29 Conclusion Perspectives From a general point of view, there are few dose-response functions available in the literature concerning major forest goods and services. There is a substantial potential for intensifying the use of the dose-response approach in a more general cost-benefit analysis or in a more elaborate economic model. Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 17 / 18

30 Conclusion Thank you! Stephane Couture (INRA-MIAT) Dose-Response and Productivity Approach 18 / 18