Two-Part Tax Controls for Forest Density and Rotation Time

tax penalty, τ^CC* PC ², decreases. This is due to the graduated nature of the tax. Notice that in no
case is the lump sum transfer positive. In every non-corner solution case under the assumptions
of this particular model, the dual tax instrument will take the form of a clear-cut and a lump sum
licensing subsidy. It is likely that a different set of assumptions on the functional form of the
externality would yield different results.

5. CONCLUSIONS

The consideration of commercial use percentage introduces a formidable, interesting, and
useful economic problem. A two-part instrument, a clear-cut tax coupled with a lump sum
subsidy can be used to remedy inefficiency where a valuable forest amenity is being negatively
affected by a firm that is harvesting too many trees too fast. Furthermore, the same instruments
can be used to induce harvest when it is socially optimal to harvest a forest, but it is not privately
optimal. The taxes would be fairly easy to implement and could be used in a wide variety of real
situations.

The stylized numerical model shows the wide variety of conditions where the clear-cut tax
and lump sum transfer could be used to achieve a socially optimal solution when the forest
amenity is analogous to erosion control. In the future, this model could be refined and expanded
upon in many ways. For example, it would be interesting to find numerical solutions for the
social optimum under different amenity value functions. Furthermore, interesting work has been
done recently by Uusivuori and Kuuluvainen (2005)on multiple age forests. Relaxing the never-
cut constraint would make this policy tool even more flexible and useful.

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