1. INTRODUCTION
This paper extends current literature of public policy on forestry by allowing the forest
planner and private landowner to choose not only the rotation time, but also what portion of each
acre will be used commercially.1 Many forest amenities are derived not only from the age of the
trees, but also from the density of the trees. In the case of some forest externalities such as
erosion control, it is possible that the clear-cutting of a forest might result in much larger
damages than would occur with selective cutting.
The regulation of the commercial use percentage per acre may dampen the externalities
associated with clear-cutting and thus avert such disasters as the one experienced in Portland,
Oregon in 1995. Massive landslides, occurring mostly in areas of clear-cutting, contaminated the
entire city’s water supply and caused millions of dollars of damage. The damage was so great
that in a recent election, Oregonians were asked to vote on a referendum that would have banned
clear-cutting completely. Regulating the commercial use percentage per acre may also dampen
the externalities associated with letting a forest grow unchecked. The immense, costly forest fires
occurring all over the Western U.S. in 2002 make it obvious that letting forests grow without
management can be as bad as clear-cutting. Therefore, on forestlands that are in danger of
falling victim to a wildfire and would not otherwise be logged, it may be prudent to provide a
firm with incentive to harvest some percentage significantly greater than zero. In either case, the
consideration of commercial use percentage is an important part of forest management and has
been ignored by the forest economics literature thus far.