Forest diversity and the distribution of farm revenue - Empirical evidence from forest farms in Taiwan

Forest diversity is important for the increase in biodiversity since higher levels of multiple ecosystem services are found in forests with a greater variety of tree species. Although a sizable body of literature has focused on the biodiversity of forest farms, little is known about the relationship between forest diversity and the economic performance of forest farms. This paper contributes to this research topic by investigating the relationship between forest diversity and forest revenue using a population-based dataset of all registered forest farms in Taiwan. In contrast to previous studies, we pay attention not only to the mean returns but also the variability in forest farm revenue. We apply the instrumental variable method with the average elevation of a farm's township as the instrument to correct for endogeneity bias. We find that forest diversity reduces the mean level and the associated dispersion of farm revenue. Moreover, the magnitude of the effect is more pronounced for the latter. By further looking at labor use on the forest farm, we find that farms that plant a greater variety of tree species require more male labor.