Problem 4: Forest Policy

Suppose the government would like to introduce a forest policy that delays the cutting of forests in order to have a larger volume of trees available for carbon sequestration. Specifically, the government would like to achieve the socially-optimal rotation interval, which considers the non-timber benefits of the forest, by introducing a severance tax on timber, which imposes a per-unit volume cost of ? on timber harvest. This means that the private net-present-value of all forest rotations is now: