Abstract
In a general discrete time model of optimal forest management where land may be diverted to alternative use and stocks of standing trees may yield flow benefits, we investigate the economic and ecological conditions under which optimal paths lead to (total) deforestation i.e., complete long term removal of forest cover. We show that if deforestation occurs from some initial state, then it must occur in finite time along every optimal path so that zero forest cover is the globally stable optimal steady state. We develop a condition that is both necessary and sufficient for deforestation. Deforestation is less likely if the immediate profitability of timber harvest, the benefits from stocks of standing forests and the timber content of trees are higher. We characterize the minimum forest cover along optimal paths (when deforestation is not optimal). We design a simple linear subsidy on standing forest biomass that can motivate a private owner (who does not take into account the external benefits from standing trees) to conserve forests.
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