A point‐input, point‐output forest as a microprototype for capital accounting

Abstract

AbstractThe point‐input, point‐output, plantation forest was first studied by Martin Faustmann in the mid‐19th century. The exploitation of a Faustmannian forest involves decisions concerning investments and receipts over time that are qualitatively different from the smooth, convex flows that are usually studied in the economics of accounting. The simple, well understood analysis of the forest has implications for the concept of income in forestry as well as in other industries that are typified by nonconvex decisions. A forest is a salient example of the importance of discrete, irreversible investment, and of the role of price effects (capital gains) in income accounting and, more fundamentally, of perceptions of the “right prices” in economic analysis.