Managing Forests for Sustainable Economic Development: Optimal Use and Conservation of Forests

The conservation of natural forests contributes significantly to the goal of achieving sustainable economic development. There is, however, growing concern that natural forests (which provide tangible and intangible economic benefits to humankind) are being lost at a rate which (combined with other factors) seriously threatens sustainable economic development because of the environmental and social impacts of such loss. There is little doubt that in order to achieve sustainable development, multifunctional forest ecosystems (as well as other important ecosystems) need to be managed appropriately. However, determining the socially optimal level of conservation and use of forests is a challenging task. From a human point of view, it is clearly not optimal to conserve all natural forests. In other words, only some conservation of natural forest is socially optimal. The extent to which (traditional) neoclassical economics elucidates the matter is explored. It is found that due to market failures, a larger amount of forest conversion occurs than is socially optimal as determined by the application of traditional welfare economics. Nevertheless, neoclassical economics fails to address adequately the requirements for sustainable economic development. When the goal of economic sustainability is taken into account, even less forest conversion than recommended by neoclassical economics is socially optimal. Some economists (for example, Ramsey and Pigou) claim that the sustainability shortcoming of neoclassical economics can be overcome by applying a zero discount rate in making decisions about resource use. This, however, does not solve the problem because it does not give enough weight to the welfare of future generations and may result in too much forest conversion from an economic sustainability viewpoint. In general, variations in the discount rate are ineffective as a means for determining measures that ensure sustainable economic development. This finding seriously undermines established economic theory.