Recovery Plan for the Northern Spotted Owl - DRAFT

timber harvesting in the Pacific Northwest does not much affect nationallumber prices or consumption, it will not substantially affect the rate of consumptionor the benefits that consumers experience from using lumber.If lumber prices and consumption are not much affected by changes in PacificNorthwest timber production, what then is its benefit? Economists call thefundamental economic benefit from development of natural resources theeconomic rent. The economic rent from harvesting a stand of timber is thedifference between the revenues from the sale of the timber harvested and thecosts of all the various resources-labor, materials, energy, capital-used inharvesting and transporting them. As Figure H.6 shows, the price of timber,PT, is determined by the intersection of the supply curve and the demand curvefor timber. This intersection represents the market equilibrium betweensupply and demand.In Figure H.6, the economic rent from the harvesting of Q, board feet per yearsold at PT' the price of timber, is the hatched area between the price line andthe supply curve. The hatched area is what is left when the costs of production,which is represented by the area under the supply curve from the originto Q,, is subtracted from the rectangle that represents the production revenues,PT X Q9.Thus, a good measure of the direct economic benefit of producing timber is thegains the economy realizes by incurring less cost in harvesting and transportinglogs than the price paid for the logs. These benefits are captured in avariety of forms: stumpage fees paid to landowners including the federalgovernment and state governments, lumber company profits, federal incometaxes, and state taxes. Stumpage prices are the best indicators of the economicbenefit of the timber that is cut because competitive bidding for timberharvest contracts forces firms to bid away most of the difference between thevalue of the logs at the millgate and the costs of harvesting and transportation.The timber supply curve in Figure H.6 shows the economic benefit that can berealized from harvesting various portions of the timber resources in a region'sPS0.0(I)00T_DAnnual rate of production 1Figure H.6. Timber supply curve and economic rent563