Do the Risk Attitudes of Smallholder Forest Managers Drive Their Forest Carbon Supply: A Risk Experiment in China

Abstract

It is widely recognized that enhancing forest carbon sequestration (FCS) can be an effective approach for mitigating climate change. Given the uncertainty about carbon pricing and the outcomes of FCS management, household perceptions of FCS management will be heavily dependent upon their risk attitudes, especially in developing countries with rich forest resources. Using a survey of 200 smallholder forest managers in Zhejiang Province in China and a risk experiment, this paper analyzes how the risk attitudes of households drive their FCS supply. We simulated the carbon supply with different risk attitudes of households based on a revised Faustmann model and a sensitivity analysis. A key finding is that compared with a timber benefit only, FCS management will generate more investment value. However, households have little incentive to change their harvest decision-making when the carbon price is low. Among the three identified risk attitude groups, although they have the same optimal rotation age when the carbon value is considered, their carbon supply per hectare is different due to difference in their planting densities. Also, the rotation age with FCS management and the FCS supply per hectare do not change significantly unless there is a substantial change in the carbon price, the management costs and the discount rate for all three risk attitude groups completely.