Optimal forest policies in an overlapping generations economy with timber and money bequests. (Q1867042)

It is known [see, for example, \textit{G. Myles}, Public economics, Cambridge Univ. Press, Cambridge, UK (1995)], that forest markets and forest stocks are linked through time due to landowners whose generations overlap. The traditional approach to long-run forestry is the well-known Faustmann model and its variants. However, these approaches assume that bequests always take the form of money. Unlike timber, money serves only a single purpose, consumption. Given the dual purpose of forests, one important question is whether an overlapping generations forest economy can ever produce operative timber bequests with one-sided altruism. Another important question concerns government policy design. The purpose of the present paper is to study optimal policy instruments when timber bequests are operative and governments face revenue pressures. Given the importance of amenity services for forest stocks, it is allowed for the possibility that citizens may have access to private forests to enjoy amenities, so that harvesting imposes a negative externality upon them. The policy choices for two types of governments, one that tries only to achieve a certain revenue target, and one that is rent seeking and attempts to maximize revenue collections, are also examined in the paper. It is also shown that combinations of taxes and subsidies on harvesting and bequests may be efficient in a range of equilibria.