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Research article2013Peer reviewed

ECONOMIC EVALUATION OF BIOTECHNOLOGICAL PROGRESS: THE EFFECT OF CHANGING MANAGEMENT BEHAVIOR

Gong, Peichen; Löfgren, Karl-Gustaf; Rosvall, Ola

Abstract

The paper assesses the welfare effects of biotechnological progress, as exemplified by tree improvements, using a partial equilibrium model. Timber demand is assumed to be stochastic and the distributions of its coefficients known. The coefficients of a log-linear supply function are determined by maximizing the expected present value of the total surplus of timber production, both in the presence and in the absence of genetically improved regeneration materials. The supply functions are then used to estimate the expected present values of the total surplus in different cases through simulation. These estimates enable us to assess the direct effect and the effect of changing harvest behavior on the expected present value of the total surplus. The main results of the study are (i) the presence of genetically improved regeneration materials has significant impacts on the aggregate timber supply function; (ii) the application of genetically improved regeneration materials leads to a significant increase in the expected present value of the total surplus; and (iii) a considerable proportion of the welfare gain results from the change in harvest behavior. A conclusion we draw from this study is that ignoring the influences of technological and policy changes on behavior can lead to significantly biased welfare estimates. We view the model as a potential approach to conducting counterfactual policy comparisons in economics without forward-looking data.

Keywords

Timber market model; tree improvements; optimal harvest decision; timber supply

Published in

Natural Resource Modeling
2013, Volume: 26, number: 1, pages: 26-52 Publisher: WILEY-BLACKWELL

      SLU Authors

      UKÄ Subject classification

      Economics
      Environmental Sciences

      Publication identifier

      DOI: https://doi.org/10.1111/j.1939-7445.2012.00118.x

      Permanent link to this page (URI)

      https://res.slu.se/id/publ/55509