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Forest conservation versus conversion under uncertain market and environmental forest benefits in Ethiopia: The case of Sheka forest

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  • Girma, Hiywot Menker
  • Hassan, Rashid M.
  • Hertzler, Greg

Abstract

Previous studies of costs and benefits of forest conservation haven't considered the irreversible nature of forest clearing and the uncertainty associated with forest preservation benefits. The present study adapted a dynamic optimization framework to analyze optimal land use decisions. Results show that ignoring negative climate change effects on tea production and forest carbon storage values leads to excessive deforestation and lower optimal forest stock levels. The analyses also suggest that optimal forest stock is inversely related with the discount rate and at discount rates higher than 5%, complete deforestation becomes the optimal land use choice. This points to the need to critically reassess discount rates currently applied to approval of projects in Ethiopia, which are generally higher than 5% and which do not distinguish projects with long-term environmental costs and benefits from others. It is therefore also necessary to introduce incentive mechanisms such as rewarding reductions in emissions from deforestation and forest degradation to prevent further clearing of forests.

Suggested Citation

  • Girma, Hiywot Menker & Hassan, Rashid M. & Hertzler, Greg, 2012. "Forest conservation versus conversion under uncertain market and environmental forest benefits in Ethiopia: The case of Sheka forest," Forest Policy and Economics, Elsevier, vol. 21(C), pages 101-107.
    • Handle: RePEc:eee:forpol:v:21:y:2012:i:c:p:101-107
    DOI: 10.1016/j.forpol.2012.01.001
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    References listed on IDEAS

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    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. G. Cornelis van Kooten & Robert A. Schipper, 2002. "Forest Conservation in Costa Rica when Nonuse Benefits are Uncertain but Rising," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 150-160.
    3. repec:bla:devpol:v:25:y:2007:i:3:p:355-377 is not listed on IDEAS
    4. Temesgen Tadesse Deressa & Rashid M. Hassan, 2009. "Economic Impact of Climate Change on Crop Production in Ethiopia: Evidence from Cross-section Measures," Journal of African Economies, Centre for the Study of African Economies, vol. 18(4), pages 529-554, August.
    5. Belcher, Brian & Ruiz-Perez, Manuel & Achdiawan, Ramadhani, 2005. "Global patterns and trends in the use and management of commercial NTFPs: Implications for livelihoods and conservation," World Development, Elsevier, vol. 33(9), pages 1435-1452, September.
    6. Reichhuber, Anke & Requate, Till, 2007. "Alternative Use Systems for the Remaining Cloud Forest in Ethiopia and the Role of Arabica Coffee - A Cost-Benefit Analysis," Economics Working Papers 2007-07, Christian-Albrechts-University of Kiel, Department of Economics.
    7. Chladna, Zuzana, 2007. "Determination of optimal rotation period under stochastic wood and carbon prices," Forest Policy and Economics, Elsevier, vol. 9(8), pages 1031-1045, May.
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    Cited by:

    1. Luca Di Corato & Tsegaye Ginbo, 2020. "Climate change and coffee farm relocation in Ethiopia: a real-options approach," Working Papers 2020:02, Department of Economics, University of Venice "Ca' Foscari".

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