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The effect of some British Columbia forest tenures on the distribution of economic rents, the allocation… Luckert, Martin Karl 1988

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THE EFFECT OF SOME BRITISH COLUMBIA FOREST TENURES ON THE DISTRIBUTION OF ECONOMIC RENTS, THE ALLOCATION OF RESOURCES, AND INVESTMENTS IN SILVICULTURE By MARTIN KARL LUCKERT B.S.F., Northern Arizona University, 1982 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE DOCTOR OF PHILOSOPHY i n THE FACULTY OF GRADUATE STUDIES THE FACULTY OF FORESTRY Department of Forest Resources Management We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA APRIL 1988 © Martin K a r l Luckert, 1988 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of fareji J?eSou.rc*S /H>ha^t^e.^'\' The University of British Columbia Vancouver, Canada Date / 2 ^ J 2 /. / 9 f ?  DE-6 (2/88) ABSTRACT Canadian forest tenures serve as p o l i c y tools which have important economic impl i c a t i o n s . This study analyzes the e f f e c t of some B r i t i s h Columbia f o r e s t tenures on the d i s t r i b u t i o n of economic rents, the a l l o c a t i o n of resources, and s i l v i c u l t u r a l investments. The t h e s i s f i r s t i d e n t i f i e s the problem governments face, as landlords, i n attempting to specify an optimum tenure. Tenures may be described i n terms of packages of i n d i v i d u a l c h a r a c t e r i s t i c s , each of which may be c o n t r o l l e d , to varying degrees, by governments. The problem governments face i s choosing an optimal combination of s p e c i f i e d c h a r a c t e r i s t i c s . Several problems emerge i n the s p e c i f i c a t i o n of i n d i v i d u a l tenure c h a r a c t e r i s t i c s and t h e i r aggregation i n t o whole optimum tenures. The s p e c i f i c a t i o n of any one optimum tenure c h a r a c t e r i s t i c requires p o l i t i c a l value judgments i m p l i c i t i n s o c i a l welfare functions. Furthermore, interdependencies exist between tenure c h a r a c t e r i s t i c s which make d i f f i c u l t the aggregation of optimally s p e c i f i e d c h a r a c t e r i s t i c s i n t o an optimum tenure. The interdependencies between tenure c h a r a c t e r i s t i c s provide the basis f o r two hypotheses. F i r s t , every tenure c h a r a c t e r i s t i c may influence the benefits of tenure holders. Second, tenure holders may expect t h e i r tenures to change, which may influence the future benefits that they receive. By t e s t i n g these hypotheses, the e f f e c t of tenures on the d i s t r i b u t i o n of rents and a l l o c a t i o n of resources are analyzed. i i i To test these hypotheses, tenure holders i n B r i t i s h Columbia were interviewed to obtain empirical measurements of the e f f e c t s of attenuations of tenure c h a r a c t e r i s t i c s on benefits of tenure holders, and the security tenure holders perceive i n t h e i r tenures. Results support both hypotheses and show how tenures are d i s t r i b u t i n g rents and a l l o c a t i n g resources. The study also investigates the e f f e c t s of tenures on investments i n s i l v i c u l t u r e . Tenure holders i n B r i t i s h Columbia are surveyed to determine amounts spent on s i l v i c u l t u r e on selected tenure types. It i s found that tenure holders which have incentives f or voluntary investments i n s i l v i c u l t u r e spend s i g n i f i c a n t l y greater amounts than those who make expenditures which are reimbursed or mandatory. Using the r e s u l t s of t h i s study, recent changes i n B r i t i s h Columbia f o r e s t p o l i c y are c r i t i q u e d and areas for further research are i d e n t i f i e d . i v TABLE OF CONTENTS ABSTRACT i i LIST OF TABLES i x LIST OF APPENDIX D TABLES x i LIST OF APPENDIX E TABLES . x i i LIST OF FIGURES x i i i ACKNOWLEDGEMENTS x i v 1. INTRODUCTION 1 1.1 Background 1 1.2 The Primary Problem and Objectives of the Research 6 1.3 Thesis Plan 8 2. PROBLEM IDENTIFICATION AND BACKGROUND 10 2.1 Related Literature 10 2.1.1 The Property Rights Approach and Contract Economics 10 2.1.2 The Property Rights Approach and Contract Economics Applied to Forestry 13 2.2 The C h a r a c t e r i s t i c s of Forest Tenures 15 2.3 Why Governments Retain Control of Some Tenure C h a r a c t e r i s t i c s 19 2.3.1 Comprehensiveness 19 2.3.2 Duration 20 2.3.3 T r a n s f e r a b i l i t y 22 2.3.4 Right of Holder to Economic Benefits. 24 2.3.5 Exclusiveness 25 2.3.6 Security 26 2.3.7 Use R e s t r i c t i o n s 28 2.3.8 Allotment Type 28 2.3.9 Size S p e c i f i c a t i o n 29 2.3.10 Operational S t i p u l a t i o n s 30 2.3.11 Operational Control 31 2.4 The Problem That Governments Face 32 2.5 The Problem This Study W i l l Face 35 3. THE EFFECT OF TENURES ON THE DISTRIBUTION OF FOREST RENTS AND THE ALLOCATION OF RESOURCES 37 3.1 Theory. 37 3.1.1 Interactions Between the Right of Tenure Holder to Economic Benefits and Other Tenure C h a r a c t e r i s t i c s 37 3.1.2 Rent D i s t r i b u t i o n s , Resource A l l o c a t i o n s , and the Right of Tenure Holder to Benefits 40 3.2 Hypothesis 42 3.3 Methodology 44 3.3.1 Background 44 3.3.2 Procedures 46 3.4 A B r i t i s h Columbia Case Study 51 3.4.1 Tenures i n B r i t i s h Columbia 51 3.4.2 The Sample 53 v i 3.5 Results 58 3.5.1 Interpreting the Results 58 3.5.2 Results of Specifying the E f f e c t of Tenure C h a r a c t e r i s t i c s on the Right of Tenure Holder to Economic Benefits 59 3.5.2.1 Freedom Ratings 60 3.5.2.2 Attenuation Ratings.. 70 3.5.2.3 Relative Importance Numbers 72 3.5.2.4 Freedom Ratios 7 4 3.6 Looking Ahead 76 4. THE EFFECT OF SECURITY OF TENURE ON THE DISTRIBUTION OF FOREST RENTS AND THE ALLOCATION OF RESOURCES 78 4.1 Theory 78 4.2 Hypothesis 79 4.3 Methodology 7 9 4.3.1 Background 79 4.3.2 Procedures 82 4.4 The Sample 83 4.5 Results 84 4.6 Looking Ahead 93 5. THE EFFECT OF TENURES ON INVESTMENTS IN SILVICULTURE 94 5.1 Theory and Hypotheses 94 5.2 Methodology and Sample 100 5.3 Results 104 5.3.1 Hypothesis 1: Voluntary Investment Incentives 110 v i i 5.3.2 Hypothesis 2: Mandatory and Reimbursed Expenditure Incentives 112 5.3.3 Hypothesis 3: Voluntary Investments and the Level of Funding ; 115 6. SUMMARY AND CONCLUSIONS 116 6.1 Summary 116 6.2 Implications of the Study 123 6.3 An Analysis of "New Dire c t i o n s for Forest P o l i c y i n B r i t i s h Columbia" 129 6.3.1 The E f f e c t of the New B r i t i s h Columbia Po l i c y on Rents of Tenure Holders 129 6.3.2 The E f f e c t of the New B r i t i s h Columbia P o l i c y on Tree Farm Licence Holders' S i l v i c u l t u r e Investments.... 135 6.3.2.1 Basic S i l v i c u l t u r e 135 6.3.2.2 Intensive S i l v i c u l t u r e 135 6.3.3 Other E f f e c t s of the P o l i c y 136 6.3.4 Recommendations on Areas f o r Further Study 139 BIBLIOGRAPHY 144 APPENDIX A: INTERVIEW FORM FOR TREE FARM LICENCES 152 APPENDIX B: INTERVIEW FORM FOR TAXATION TREE FARMS 168 APPENDIX C: INTERVIEW FORM FOR CROWN GRANTS 178 APPENDIX D: SUMMARY STATISTICS OF DESCRIPTIVE NUMBERS BY TENURE TYPE 184 v i i i APPENDIX E: SUMMARY STATISTICS OF SECURITY PERCEPTION NUMBERS BY TENURE TYPE 213 APPENDIX F: QUESTIONNAIRE FORM FOR MANAGEMENT EXPENDITURES 234 i x LIST OF TABLES Table 1: Total Inventoried Forest Land i n Canada by Province and Ownership 4 Table 2: B r i t i s h Columbia Volumes Committed by Tenure Type as of March 31, 1986 52 Table 3: B r i t i s h Columbia Tax C l a s s i f i c a t i o n s f o r Private Forest Lands up u n t i l January 1, 1987 54 Table 4: Mean Values of Crown Grant Descriptive Numbers 61 Table 5: Mean Values of Taxation Tree Farm Descr i p t i v e Numbers 62 Table 6: Mean Values of Tree Farm Licence Descriptive Numbers 64 Table 7: Security Perception Number Means for Crown Grants 85 Table 8: Security Perception Number Means for Taxation Tree Farms 86 Table 9: Security Perception Number Means for Tree Farm Licences 88 Table 10: Average Annual S i l v i c u l t u r e Expenditures for Crown Grants 105 Table 11: Average Annual S i l v i c u l t u r e Expenditures f o r Taxation Tree Farms 106 Table 12: Average Annual S i l v i c u l t u r e Expenditures for Tree Farm Licence Schedule B Lands 107 Table 13: Average Annual S i l v i c u l t u r e Expenditures for . Tree Farm Licence Schedule A Timber Licence Lands 108 X Table 14: Average Annual S i l v i c u l t u r e Expenditures for Tree Farm Licence Crown Grant Lands 109 x i LIST OF APPENDIX D TABLES Table DI: Freedom Rating Summary S t a t i s t i c s of Crown Grants 185 Table D2: Attenuation Rating Summary S t a t i s t i c s of Crown Grants 186 Table D3: Relat i v e Importance Number Summary S t a t i s t i c s of Crown Grants 187 Table D4: Freedom Ratio Summary S t a t i s t i c s of Crown Grants 188 Table D5: Freedom Rating Summary S t a t i s t i c s for Taxation Tree Farms 189 Table D6: Attenuation Rating Summary S t a t i s t i c s of Taxation Tree Farms 191 Table D7: Re l a t i v e Importance Number Summary S t a t i s t i c s of Taxation Tree Farms 193 Table D8: Freedom Ratio Summary S t a t i s t i c s of Taxation Tree Farms 194 Table D9: Freedom Rating Summary S t a t i s t i c s of Tree Farm Licences 197 Table D10: Attenuation Rating Summary S t a t i s t i c s of Tree Farm Licences 201 Table D l l : R e l a t i v e Importance Number Summary S t a t i s t i c s of Tree Farm Licences 205 Table D12: Freedom Ratio Summary S t a t i s t i c s of Tree Farm Licences 208 x i i LIST OF APPENDIX E TABLES Table E l : Absolute Value Security Perception Number Summary S t a t i s t i c s of Crown Grants 214 Table E2: Security Perception Number Summary S t a t i s t i c s of Crown Grants 215 Table E3: Absolute Value Security Perception Number Summary S t a t i s t i c s of Taxation Tree Farms 216 Table E4: Security Perception Number Summary S t a t i s t i c s of Taxation Tree Farms 219 Table E5: Absolute Value S e c u r i t y Perception Number Summary S t a t i s t i c s of Tree Farm Licences 222 Table E6: Security Perception Number Summary S t a t i s t i c s of Tree Farm Licences 228 x i i i LIST OF FIGURES Figure 1: C h a r a c t e r i s t i c Attenuations and Economic Rents 43 Figure 2: The Measurement of Tenure C h a r a c t e r i s t i c Attenuations 49 Figure 3: Theoretical Measurements of Tenure C h a r a c t e r i s t i c Security 81 x i v ACKNOWLEDGEMENTS The e f f o r t s of many people have made t h i s thesis possible. I am indebted to Dr. D. Haley whose b r a i n c h i l d t h i s e n t i r e project was. His guidance, support, and b e l i e f i n what I was doing were instrumental i n conducting t h i s study. I would also l i k e to thank the r e s t of my supervisory and examining committee: Mr. R. Campbell, Dr. J . A. Gray, Dr. P. Neher, Dr. P. H. Pearse, Dr. W. E. Rees, Dr. A. D. Scott, Dr. J . H. G. Smith and Dr. J . V. Thirgood, for t h e i r valuable suggestions and c r i t i c i s m . There are those who are due thanks f o r providing s p e c i f i c expertise and information. Dr. N. Guppy and Dr. P. Marchak of the Sociology Department, U n i v e r s i t y of B r i t i s h Columbia, provided valuable help i n the designing of interviews and questionnaires. The B r i t i s h Columbia Assessment Authority and M i n i s t r y of Forests and Lands provided background information. Dermot McCarthy and S h i r l e y Hann played v i t a l roles i n solving computer problems. Special thanks are due to the Council of Forest Industries, other members of industry, and p r i v a t e forest land holders who gave generously of t h e i r time and patience. I am g r a t e f u l to the Canadian Forestry Service and The University of B r i t i s h Columbia for providing f i n a n c i a l support for my graduate studies. I express my gratitude to graduate student colleagues for t h e i r p a r t i c i p a t i o n i n endless discussions which d i r e c t e d my i n q u i r i e s into f e r t i l e areas. F i n a l l y , and most importantly, I would l i k e to acknowledge the love and support provided by my wife Becky. Her s a c r i f i c e s endured, and countless hours spent i n support of my graduate studies provided the basis which made t h i s e n t i r e project p o s s i b l e . 1 1. INTRODUCTION 1.1 BACKGROUND In most countries with f o r e s t resources, there i s a considerable amount of p u b l i c involvement i n t h e i r management. J u s t i f i c a t i o n for such widespread public intervention i s the f a i l u r e , or perceived f a i l u r e , of p r i v a t e market processes to a l l o c a t e f o r e s t resources i n an optimum manner from a s o c i a l perspective. Market f a i l u r e r e s u l t s when p r i c e s , which influence the production and consumption decisions of firms i n the p r i v a t e sector, f a i l to r e f l e c t the benefits and costs to society at large of f o r e s t resource use. The Economic Council of Canada (1984) has i d e n t i f i e d several sources of market f a i l u r e i n the f o r e s t r y sector. The most common source a r i s e s from the fact that many of the services provided by f o r e s t resources are not exchanged through conventional market channels. They are unpriced i n the market place and, therefore, p r i v a t e land managers have no incentive to produce them at a s o c i a l l y optimal r a t e . Such services include various types of outdoor recreation, w i l d l i f e h abitat, f l o o d and avalanche c o n t r o l , water q u a l i t y , s o i l s t a b i l i z a t i o n , aesthetic values and climate modification. A second source of market f a i l u r e a r i s e s from the f a c t that f o r e s t based i n d u s t r i e s are frequently associated with the growth and development of r u r a l regions and form the p r i n c i p a l economic support for numerous small communities. P r o f i t motivated p r i v a t e firms are said to give i n s u f f i c i e n t 2 weight i n t h e i r production decisions to the importance of community s u r v i v a l and the s t a b i l i t y of regional employment and incomes. F i n a l l y , there i s a common perception that due to c a p i t a l market imperfections and the r e l a t i v e l y short time horizons of p r i v a t e (compared to public) planners, p r i v a t e f o r e s t firms invest i n s i l v i c u l t u r e at a rate which i s below the s o c i a l optimum. Governments may react to market f a i l u r e i n several ways. They may ignore the f a i l u r e of markets to serve the public i n t e r e s t , and frequently do, on the grounds that the costs of bureaucratic intervention, both d i r e c t l y and i n terms of reduced economic e f f i c i e n c y and loss of personal freedom, exceed the p o t e n t i a l s o c i a l b e n e f i t s . However, i n some cases, the divergence between p u b l i c and p r i v a t e i n t e r e s t s i s perceived as being so great that p u b l i c p o l i c i e s designed to replace, or modify, market a l l o c a t i v e processes are considered to be i n the best public i n t e r e s t . Governments may choose several ways i n which to intervene i n the market a l l o c a t i v e process. These include d i r e c t control over resource a l l o c a t i o n through p u b l i c resource ownership, regulation of the p r i v a t e sector, or the use of incentives designed to induce private firms to behave i n ways which furt h e r p u b l i c o b j e c t i v e s . Property Rights are a major p o l i c y instruments used by governments to intervene i n the market process. Indeed the differences between the three broad options presented above are due to varia t i o n s i n the s p e c i f i c a t i o n of property r i g h t s . In the case of p u b l i c ownership, property r i g h t s are vested i n the sta t e . When governments regulate, or provide incentives f o r , the p r i v a t e sector, they do so by attenuating c e r t a i n p r i v i l e g e s , or 3 property r i g h t s , enjoyed by the p r i v a t e sector, or by t r a n s f e r r i n g c e r t a i n or p a r t i a l r i g h t s to the p r i v a t e sector while the r e s i d u a l r i g h t s are retained by the Crown. Perhaps the most common attenuation of p r i v a t e property r i g h t s i s taxes which l i m i t the benefits a property holder may receive. However, i n the case of forest resources, many governments, f e a r i n g the market f a i l u r e s discussed above, have retained t h e i r forested lands i n p u b l i c ownership and transferred only p a r t i a l r i g h t s to the pr i v a t e sector. The agreements which f a c i l i t a t e transfer of p a r t i a l r i g h t s of fo r e s t resources from the p u b l i c to the private sector are known as fo r e s t tenures. In B r i t i s h Columbia, the prevalent concept of forest tenures i s based upon public ownership with c e r t a i n r i g h t s t r a n s f e r r e d to the p r i v a t e sector. However, whether governments attenuate previously p r i v a t e l y held r i g h t s , or whether they trans f e r c e r t a i n r i g h t s from the p u b l i c to the pr i v a t e sector, the end r e s u l t i s that p r i v i l e g e s of property are shared between the public and p r i v a t e sectors. While "private ownership" and "public ownership" have c e r t a i n d o c t r i n a i r e connotations, i t i s frequently d i f f i c u l t to d i s t i n g u i s h between them. Whether s u f f i c i e n t r i g h t s to an asset have been transferred to the pr i v a t e sector to make i t "private property", i s a moot question (Alchian and Demsetz, 1973). For t h i s reason, t h i s study w i l l r e fer to a l l types of holdings which have property r i g h t s d i s t r i b u t e d between pu b l i c and p r i v a t e sectors, as tenures. Governments i n Canada, both p r o v i n c i a l and fe d e r a l , have retained t i t l e to a remarkably high proportion of fo r e s t land. For the country as a whole, only 6 percent of the 342 m i l l i o n hectares of forest land i s i n pr i v a t e ownership (Bonner, 1981). As can be seen i n Table 1, only i n New 4 TABLE 1: TOTAL INVENTORIED FOREST LAND IN CANADA BY PROVINCE AND OWNERSHIP Provinces Area i n 1000 km 2 and T e r r i t o r i e s P r o v i n c i a l Federal P r i v a t e T o t a l B r i t i s h Columbia 543 6 17 566 A l b e r t a 297 34 - 331 Saskatchewan 118 5 - 123 Manitoba 231 4 5 240 Ontario 381 7 43 432 Quebec 556 2 66 624 New Brunswick 31 2 32 65 Nova S c o t i a 11 1 29 41 P r i n c e Edward Is l a n d - 0.2 2 2 Newfoundland 135 2 6 142 Yukon Territory- - 242 _ 242 Northwest T e r r i t o r y - 615 — 615 Canada 2303 919 201 3424 Sources: Bonner, 1981; S t e r l i n g Wood Group, Inc., 1985. 5 Brunswick, Nova Scotia and Prince Edward Island do p r i v a t e ownerships comprise a sub s t a n t i a l proportion of p r o v i n c i a l f o r e s t land. While the vast majority of forest lands i n most regions of Canada i s p u b l i c l y owned, timber harvesting and fo r e s t products manufacturing enterprises are almost e n t i r e l y i n p r i v a t e hands. As a r e s u l t of t h i s dichotomy of ownership, f o r e s t p o l i c y makers, since the e a r l i e s t days of land settlement, have been concerned with the task of a l l o c a t i n g harvesting r i g h t s to p u b l i c timber. Consequently, tenure arrangements have emerged throughout Canada as major instruments of p u b l i c f o r e s t p o l i c y . To a great extent, the h i s t o r y of fo r e s t p o l i c y development i n a l l the provinces has been the h i s t o r y of emerging and evolving property r i g h t s to fo r e s t land and timber. The s p e c i f i c a t i o n of property r i g h t s can have profound e f f e c t s on the ways i n which economic i n s t i t u t i o n s function and the ways i n which firms and i n d i v i d u a l s behave. Property r i g h t s can provide incentives or disin c e n t i v e s for i n d i v i d u a l s and groups to behave i n ways which further s o c i a l o b j e c t i v e s . With respect to the use and management of natural resources, some of the most serious problems have ari s e n because property r i g h t s are poorly or incompletely defined. The s p e c i f i c a t i o n of property r i g h t s i s , therefore, an important aspect of pu b l i c p o l i c y and i s a c r u c i a l component of pub l i c f o r e s t p o l i c y i n a l l the Canadian provinces. Forest tenure systems i n Canada have evolved i n response to changing s o c i a l and economic imperatives. In recent years, several provinces have overhauled and r a t i o n a l i z e d t h e i r tenure systems and have t r i e d to eliminate the more serious anomalies and inconsistencies which had resu l t e d from years of piecemeal development. Attempts have been made to develop 6 tenure systems designed to achieve broad public objectives. Such planning, however, has been mainly i n t u i t i v e , and the impacts of a l t e r n a t i v e tenure arrangements have not been monitored i n a systematic manner. The lack of knowledge i n t h i s area has resulted i n c o n t i n u a l l y changing tenure p o l i c i e s as governments have attempted to promote s o c i a l o b j e c t i v e s . 1.2 THE PRIMARY PROBLEM AND OBJECTIVES OF THE RESEARCH The importance of tenures as p o l i c y tools creates the premise for the primary problem that t h i s study w i l l address: too l i t t l e i s known about the economic implications of the s p e c i f i c a t i o n of d i f f e r e n t f o r e s t tenures. The o b j e c t i v e of t h i s study i s to address t h i s problem by developing a better understanding of the complexities of tenure arrangements. S p e c i f i c a l l y , the o b j e c t i v e i s to address three questions 1: 1. How do tenures a f f e c t the d i s t r i b u t i o n of economic rents and the a l l o c a t i o n of resources? 2. What r o l e does tenure security play i n a f f e c t i n g rent d i s t r i b u t i o n s and resource a l l o c a t i o n s ? 3. How do tenures a f f e c t incentives f or investment i n s i l v i c u l t u r e ? In addressing the f i r s t question, we w i l l f i n d out how tenures d i v i d e the economic rents of f o r e s t s between the Crown and the tenure holder, and how the amount of rent a v a i l a b l e i s affected by tenure s p e c i f i c a t i o n s . By determining the d i s t r i b u t i o n and a v a i l a b l e amount of economic rent, tenures w i l l a l s o be shown to influence resource a l l o c a t i o n s . 1. Chapter 2, w i l l discuss why these s p e c i f i c research questions w i l l be addressed. 7 The second question w i l l address the kinds of tenure changes which cause tenure holders to perceive t h e i r r i g h t s as being insecure. The security of tenures w i l l then be shown to a f f e c t rent d i s t r i b u t i o n s and resource a l l o c a t i o n s . The l a s t question w i l l address a problem of major concern to governments across Canada. As o l d growth forests are being depleted, what incentives do tenure holders have to e s t a b l i s h and maintain new crops? Besides having important welfare implications for Canadians, a better understanding of f o r e s t tenures i s a l s o of relevance to f o r e s t r y problems i n other countries. S p e c i f i c a l l y , there has recently been a resurgence of a debate i n the United States on the merits of p r i v a t e versus public ownership of f o r e s t s . In t h i s debate, lease arrangements have been seen as a p o s s i b l e compromise s o l u t i o n . Resler (1984) suggested that the United States c a r e f u l l y study Canada's experiences with long term c u t t i n g r i g h t s . Leman (1984) pointed to B r i t i s h Columbia's extensive experience with leasing of f o r e s t lands s t a t i n g : "We i n the United States have experimented too l i t t l e with l e a s i n g and have been p e c u l i a r l y incurious about the experience of other countries with i t . " C u r i o s i t y about Canadian forest tenures i s i n c r e a s i n g i n the United States. Currently, the State of Alaska i s considering implementing a system modeled a f t e r Ontario tenures i n order to develop i t s i n t e r i o r f o rest industry (Gasbarro, 1986). In a d d i t i o n to these f o r e s t r y issues, parts of t h i s study are relevant to problems i n other f i e l d s . The theory and empirical methodology 2. Despite the fa c t that tenures are a l s o said to play an important r o l e i n i n f l u e n c i n g processing plant investments, i t i s beyond the scope of t h i s study to analyze t h i s problem i n d e t a i l . However, b r i e f mention of processing plants i s made i n sections 2.3.10, and 6.3.3. 8 developed i n t h i s study are general enough to be used to address many kinds of property r i g h t s and leasing problems. 1.3 THESIS PLAN The t h e s i s i s structured around the problem to be addressed and the three research questions posed. Chapter 2 i d e n t i f i e s why the general problem and s p e c i f i c research questions were chosen and provides background for subsequent analyses. A b r i e f overview of r e l a t e d l i t e r a t u r e i n the f i e l d s of property r i g h t economics and contract economics d i s c l o s e s questions and concepts relevant to Canadian f o r e s t tenures. Next the reasons why governments may choose to r e t a i n c o n t r o l of some c h a r a c t e r i s t i c s of tenures are reviewed. The chapter concludes by p o i n t i n g out the complications that emerge when governments attempt to create a tenure which i s s o c i a l l y optimal. By i d e n t i f y i n g the complications of the problem, three general research hypotheses are i d e n t i f i e d which are analyzed i n subsequent chapters. The f i r s t hypothesis, addressed i n Chapter 3, i s : 1. The s p e c i f i c a t i o n of tenures may a f f e c t the benefits that tenure holders receive from t h e i r tenures and may thereby influence the d i s t r i b u t i o n of economic rents and the a l l o c a t i o n of resources. To i n v e s t i g a t e t h i s hypothesis, a case study of selected B r i t i s h Columbia tenure holders i s conducted to obtain empirical estimates of the perceived costs of various tenure s t i p u l a t i o n s . The second hypothesis, addressed i n Chapter 4, i s : 9 2. Tenure holders may expect t h e i r tenures to change, which may i n f l u e n c e the f u t u r e b e n e f i t s that they r e c e i v e and, thereby, i n f l u e n c e the f u t u r e d i s t r i b u t i o n of economic r e n t s , and f u t u r e and current a l l o c a t i o n s of resources. To i n v e s t i g a t e t h i s hypothesis, s e l e c t e d B r i t i s h Columbia tenure holders were surveyed to o b t a i n e m p i r i c a l estimates of t h e i r perceived tenure s e c u r i t y . The t h i r d hypothesis, addressed i n Chapter 5, i s : 3. The s p e c i f i c a t i o n and s e c u r i t y of tenures a f f e c t s the extent to which tenure holders have i n c e n t i v e s f o r s i l v i c u l t u r a l investments. To i n v e s t i g a t e t h i s hypothesis, s i l v i c u l t u r a l expenditure data was c o l l e c t e d f o r s e l e c t e d B r i t i s h Columbia tenure types. Chapter 6 summarizes the study and reviews recent changes i n B r i t i s h Columbia f o r e s t p o l i c y i n l i g h t of the f i n d i n g s of t h i s work. The report concludes by i d e n t i f y i n g areas f o r f u r t h e r research. 10 2. PROBLEM IDENTIFICATION AND BACKGROUND The general problem that t h i s thesis w i l l address i s that too l i t t l e i s known about the economic implications of a l t e r n a t i v e tenure s p e c i f i c a t i o n s . This chapter w i l l d efine the scope of the thesis by d i s c u s s i n g why t h i s b a s ic problem, and the s p e c i f i c questions raised i n Chapter 1, should be i n v e s t i g a t e d . In the process of i d e n t i f y i n g the problem, background information for subsequent analyses w i l l a lso be presented. In order to i d e n t i f y the research questions and provide the necessary background, relevant l i t e r a t u r e w i l l f i r s t be explored. Next, the question of how governments, as f o r e s t landlords, could optimally structure a f o r e s t tenure w i l l be addressed. Exploration of t h i s problem w i l l help define s p e c i f i c research problems to be investigated i n the remainder of the t h e s i s . 2.1 RELATED LITERATURE 2.1.1 The Property Rights Approach and Contract Economics Problems a r i s i n g from the r o l e of property r i g h t s i n society have occupied scholars for centuries. E a r l y enquiries by Hobbes (1651) and Locke (1690) delved i n t o how the nature of man's behavior necessitated c e r t a i n types of property r i g h t s . Today, a f i e l d of study known as the property r i g h t s approach to economics has added the economic concept of u t i l i t y 11 maximization to considerations of a l t e r n a t i v e property r i g h t s , i n order to study how and why property r i g h t s evolve to be s o c i a l l y recognized r i g h t s . 1 T r a d i t i o n a l micro-economic theory i s predicated on the notions of p r i v a t e property r i g h t s and zero transactions costs. In the property r i g h t s approach, the assumption of p r i v a t e property i s relaxed so that the v a r i e d c h a r a c t e r i s t i c s of property r i g h t s , which determine economic behavior and have an impact on the pursuit of s o c i a l welfare, can be analyzed. Once the assumption of pri v a t e property r i g h t s i s removed, the behavior of firms seeking to maximize t h e i r u t i l i t y i s a l t e r e d . Constraints on the u t i l i t y functions of firms vary with the property r i g h t s framework within which they are operating. In order to p r e d i c t the behavior of firms, i n d i v i d u a l u t i l i t y functions must be i d e n t i f i e d and maximized subject to these c o n s t r a i n t s . In many cases, inappropriate property r i g h t frameworks lead to behavior, on the part of the i n d i v i d u a l firms, which i s contrary to the pu b l i c good. That i s , firms, r a t i o n a l l y seeking to maximize t h e i r u t i l i t y within the constraints of t h e i r property r i g h t frameworks, f a i l to maximize s o c i a l welfare. The costs of detecting and c o r r e c t i n g p r i v a t e behavior which i s contrary to the public good are a type of transactions cost. Transactions costs may lead to the perpetuation of seemingly s o c i a l l y undesirable patterns of behavior i f they exceed the benefits of such c o r r e c t i v e measures as defining, negotiating and enforcing a modified system of 1. Some works representative of t h i s f i e l d have been written by Alchian (1969), Alchian and Demsetz (1973), Coase (1959, 1960), Dahlman (1980), De A l e s s i (1980), Demsetz (1967), Furubotn and Pejovich (1970, 1972, 1974), McKean (1970, 1972), Pejovich (1971, 1972, 1984), Randall (1975), Scott (1984), Scott and Johnson (1983), Stroup and Baden (1979), and Umbeck (1981). 12 property r i g h t s . Recognizing the existence of transactions costs not only helps explain apparently i n e f f i c i e n t behavior, but also provides the reason for the emergence of c e r t a i n property r i g h t frameworks. For example, i n e f f i c i e n t l y operated, non-exclusive resources such as f i s h e r i e s frequently remain so because of the high costs of setting up and enforcing a system of more exclusive r i g h t s . In pursuing questions about how and why property r i g h t s have evolved, another c l o s e l y r e l a t e d f i e l d of study known as contract economics has a r i s e n . Contract economics uses many of the same concepts as the property r i g h t s approach, however, they d i f f e r i n one major respect. Whereas the property r i g h t s approach enquires i n t o how and why d i f f e r e n t sectors, or groups, obtain d i f f e r i n g types of r i g h t s , contract economics assumes a given landlord with the power to assign r i g h t s to tenants. By assuming a set of s o c i a l l y recognized r i g h t s , contract economics deals more with s p e c i f i c conditions of contracts than does the property r i g h t s approach. The primary question for contract economics thus becomes: given l a n d l o r d -tenant r e l a t i o n s h i p s , and the existence of transactions costs, what type of contracts would landlords choose i n order to maximize t h e i r u t i l i t i e s ? Landlords, i n maximizing t h e i r u t i l i t i e s , assume that the tenants w i l l , i n turn, maximize t h e i r u t i l i t i e s within constraints that provisions of the contract provide. 2 Some works representative of t h i s f i e l d include Cheung (1969a&b), Crommelin and Thompson (1977), Currie (1981), Eswaren and Kotwal (1983), Goldberg (1976), K l e i n et a l . (1978), Kotwal (1981), Kronman and Posner (1979), Lowry (1976), MacNeil (1978), S t i g l i t z (1975), and Williamson (1979). 13 2.1.2 The Property Rights Approach and Contract Economics Applied to  Forestry Although concepts from both the property r i g h t s and contract economics approaches have been applied to numerous natural resources, very l i t t l e of t h i s work considers forest resources. In f a c t , there i s a surprising lack of both t h e o r e t i c a l and empirical studies i n t h i s important f i e l d . Some notable exceptions follow. Two studies supported by the Food and Ag r i c u l t u r e Organization of the United Nations have analyzed forest tenures. Schmithusen (1977) studied forest u t i l i z a t i o n contracts and Gray (1983) studied f o r e s t revenue systems. Both of these studies have proven useful as operational guides written from s p e c i f i c experiences i n developing countries. However, neither of them attempts to develop economic theory amenable to empirical a n a l y s i s . Various Canadian p r o v i n c i a l task forces and Royal Commissions have studied the e f f e c t s of f o r e s t tenures, seeking p o s s i b l e room f or improvements (for example: Pearse, 1976 for B r i t i s h Columbia; Anonymous, 1981 for New Brunswick; and Anonymous 1983 for Nova S c o t i a ) . These studies have been concerned p r i m a r i l y with adapting p a r t i c u l a r c h a r a c t e r i s t i c s of tenures to changing s o c i a l values and needs. In attempting to adjust tenure systems to s o c i a l changes, these studies have made valuable contributions to our understanding of how i n d i v i d u a l c h a r a c t e r i s t i c s of fo r e s t tenures may ef f e c t economic behavior. However, what i s lacking i n the l i t e r a t u r e on forest tenures i s a comprehensive theory d e s c r i b i n g how whole tenure systems (as opposed to marginal changes i n i n d i v i d u a l tenure c h a r a c t e r i s t i c s ) a f f e c t economic behavior. 14 There has been l i t t l e t h e o r e t i c a l research on the r o l e of tenures i n the f o r e s t sector. A notable exception i s a study by Rawat (1985) who developed an investment model which incorporates the tenure c h a r a c t e r i s t i c s of duration and p r o b a b i l i t y of renewal. While Rawat's model d i d give a q u a n t i t a t i v e foundation to some common perceptions about how these c h a r a c t e r i s t i c s a f f e c t f o r e s t r y firms, the study d i d not t e s t the theory with any data c o l l e c t e d from the forest sector. Instead, Rawat tested parts of tenure theory as they i n t e r a c t with the theory of a firm a c t i n g so as to maximize i t s net present value. ECO Northwest (1987) attempted to quantify the costs to p r i v a t e landowners of various state forest p r a c t i c e regulations i n the United States. While t h e i r study does recognize some of the same p r i n c i p l e s followed i n t h i s study, i t does not consider the wide range of d i f f e r i n g constraints found i n Canadian f o r e s t tenures. Thus, no known study to date has applied the approaches of either property r i g h t s economics or contract economics to f o r e s t tenures, or seen whether the t h e o r e t i c a l postulates of these f i e l d s can be supported with f o r e s t sector data. There would be much value i n the knowledge gained from addressing such fundamental property r i g h t s questions as how and why forest tenures have evolved to be s o c i a l l y acceptable r i g h t s . However, such questions are beyond the scope of t h i s t h e s i s . In order to determine more p r e c i s e l y the scope of t h i s study, the remainder of t h i s chapter w i l l follow the assumptions of contract economics. That i s , i t w i l l be assumed that governments have the a b i l i t y to assign as many, or as few, r i g h t s to the p r i v a t e sector tenant as they desire. Furthermore, governments w i l l be portrayed as landlords seeking to maximize t h e i r u t i l i t y which i s 15 influenced by multiple objectives that r e f l e c t the many s o c i a l welfare concerns of t h e i r constituents, the general p u b l i c . Tenants w i l l also be assumed to be maximizers, but w i l l have the sing l e o b j e c t i v e of economic rent maximization. 2.2 THE CHARACTERISTICS OF FOREST TENURES Before we can analyze how e n t i r e tenures a f f e c t the behavior of firms, i t i s necessary to break down tenures i n t o t h e i r i n t e g r a l parts. Each of these parts w i l l be r e f e r r e d to as tenure c h a r a c t e r i s t i c s . Scott and Johnson (1983) and Pearse (1984a), among others, have i d e n t i f i e d c h a r a c t e r i s t i c s of property r i g h t s which may be used to describe forest tenures. These include: — Comprehensiveness, — Duration, — T r a n s f e r a b i l i t y , — Right of Tenure Holder to Economic Benefits, — Exclusiveness, — Security. In addition to these c h a r a c t e r i s t i c s , Haley and Luckert (1986) i d e n t i f i e d several a d d i t i o n a l c h a r a c t e r i s t i c s of f o r e s t tenures i n c l u d i n g : 3. Concepts of property r i g h t s involve combinations of many i n t e r r e l a t e d f a c t o r s . Because these concepts are so i n t e r r e l a t e d , there are many d i f f e r e n t ways to c l a s s i f y property r i g h t s . The following c l a s s i f i c a t i o n s have been adopted because i t i s thought that these categories, and t h e i r contents, best delineate concepts of property rights as they apply to forest tenures. Furthermore, i n c l a s s i f y i n g property r i g h t s , there i s the question of which behavioral r e s t r i c t i o n s placed on tenure holders may be considered as parts of f o r e s t tenures and which r e s t r i c t i o n s are general laws of the land. This study considers those r e s t r i c t i o n s which a f f e c t f o r e s t tenure holders' decisions, but not the more general l e g a l r e s t r i c t i o n s which r e s t r i c t the general populace. 16 — Use R e s t r i c t i o n s , — Allotment Type, — Size S p e c i f i c a t i o n , — Operational S t i p u l a t i o n s , — Operational Control. Comprehensiveness r e f e r s to the number of a t t r i b u t e s of an asset over which the property r i g h t s holder has c o n t r o l . The a c q u i s i t i o n of an asset does not always include the r i g h t to a l l i t s a t t r i b u t e s . Certain a t t r i b u t e s may be disposed of separately. For example, i n the sale of land, r i g h t s to water and minerals are often separated from surface r i g h t s . Governments, t r a n s f e r r i n g the r i g h t s of forest land, frequently withhold the r i g h t s to non-timber products. Duration r e f e r s to the period over which the r i g h t s can be exercised. Private property u s u a l l y implies perpetual duration, but various forms of leases and l i c e n c e s may specify varying lengths of term. T r a n s f e r a b i l i t y r e f e r s to the r i g h t s of property holders to s e l l , or otherwise dispose of, t h e i r property as they see f i t . T r a n s f e r a b i l i t y v a r i e s g r e a t l y between d i f f e r e n t types of property holdings. Thus, otherwise unfettered p r i v a t e property may be subject to r e s t r i c t i v e covenants which l i m i t the tenure holder's a b i l i t y to s e l l , lease, give or bequeath the r i g h t s to whom he wishes. On the other hand, c e r t a i n highly r e s t r i c t e d leases and l i c e n c e s may be f u l l y and f r e e l y transferable. Sometimes p a r t i a l r e s t r i c t i o n s on t r a n s f e r a b i l i t y e x i s t which place p r o h i b i t i o n s on the d i s p o s a l of c e r t a i n a t t r i b u t e s , or products, of an asset. For example, holders of Crown granted forest land i n Canada are 17 prohibited from exporting unmanufactured forest products — logs or chips -- without a permit. In some cases, holders of Crown tenures are di r e c t e d to s e l l logs or chips to c e r t a i n manufacturing firms. The r i g h t of a tenure holder to economic benefits r e f e r s to the extent to which the economic returns generated by an asset can be captured by the holder of the property r i g h t s . The r i g h t s of property holders i n t h i s respect may be l i m i t e d by the imposition of taxes, fees and user charges and by r e s t r i c t i o n s which require the property to be managed or maintained i n c e r t a i n ways. Exclusiveness r e f e r s to the r i g h t s of property holders to prevent others from f r e e l y enjoying the benefits of the asset. Without some degree of e x c l u s i v i t y , property r i g h t s may be of very l i t t l e value to t h e i r holders. Assets to which exclusive r i g h t s cannot be granted are known as "public goods". 4 Such goods w i l l not be produced at an optimum l e v e l through p r i v a t e sector a c t i v i t i e s and, i f s o c i a l l y d e s i r a b l e , must be provided through c o l l e c t i v e a c t i o n . C l a s s i c examples of public goods include such things as lighthouses and national defense. They may also include many important forest products such as wilderness, landscape aesthetics, and watershed prot e c t i o n . There i s an a d d i t i o n a l c h a r a c t e r i s t i c of property r i g h t s which i s of a somewhat d i f f e r e n t nature to those described above. This c h a r a c t e r i s t i c , which w i l l be r e f e r r e d to as " s e c u r i t y " , has no statutory or common law basis, but depends on the s o c i o - p o l i t i c a l environment i n which a p a r t i c u l a r set of property r i g h t s are granted. To a great extent, security 4. Public goods a l s o have the property that an a d d i t i o n a l user does not reduce the value of the good to others. 18 i s a function of the property r i g h t holders' perceptions — the extent to which they " t r u s t " the p o l i t i c a l system under which t h e i r property r i g h t s were granted; t h e i r past experiences; and the p r o b a b i l i t i e s they attach to the chances of p o l i t i c a l or s o c i a l change of various types. Security, as we s h a l l see l a t e r , i s one of the important factors a f f e c t i n g the behavior of forest tenure holders, yet i t i s most d i f f i c u l t to quantify o b j e c t i v e l y . Use r e s t r i c t i o n s can l i m i t the ways i n which an asset may be used. A common example i s zoning r e s t r i c t i o n s which prevent businesses from lo c a t i n g i n r e s i d e n t i a l areas. Forest tenures usually specify that the property be used to manage and/or harvest timber resources. Allotment type of forest tenures ref e r s to whether a holding i s held on an area or volume bas i s . Some tenures comprise a s p e c i f i c area. Within that area, annual allotments may be c o n t r o l l e d with allowable annual cuts i n terms of volumes or areas. Other tenures may represent o b l i g a t i o n s for a s p e c i f i c annual volume which may come from one of several areas. Size s p e c i f i c a t i o n refers to r e s t r i c t i o n s i n area or volume which may be placed on a holding. The size s p e c i f i c a t i o n i s usually i n terms of the number of hectares i n the holding, volume i n terms of an allowable annual cut, or both. Operational s t i p u l a t i o n s include a wide v a r i e t y of conditions that are required of tenure holders. These s t i p u l a t i o n s may include r e f o r e s t a t i o n requirements, s o i l and water conservation measures, u t i l i z a t i o n standards, or the requirement that an appurtenant timber processing f a c i l i t y be b u i l t or maintained. 19 O p e r a t i o n a l c o n t r o l of tenures r e f e r s t o the means and extent t o which the government ensures adherence t o o p e r a t i o n a l s t i p u l a t i o n s and other r e s t r i c t i o n s placed on tenure h o l d e r s . Operational c o n t r o l o f t e n takes the form of p o l i c i n g . However, c o n t r o l may a l s o be achieved by r e q u i r i n g o p e r a t i o n a l , working, and management plans be submitted to the government f o r approval. 2.3 WHY GOVERNMENTS RETAIN CONTROL OF SOME TENURE CHARACTERISTICS Having d i s s e c t e d f o r e s t tenures i n t o t h e i r components, t h i s s e c t i o n w i l l now d i s c u s s why governments r e t a i n c o n t r o l of some r i g h t s . The important question to be addressed i s whether p u b l i c c o n t r o l of c e r t a i n property r i g h t s c h a r a c t e r i s t i c s provide i n c e n t i v e s f o r behavior which impede market a l l o c a t i v e processes, and, i f so, i d e n t i f y reasons why governments, n e v e r t h e l e s s , r e t a i n these r i g h t s . This i n i t i a l a n a l y s i s w i l l t r e a t each c h a r a c t e r i s t i c i n d i v i d u a l l y , c e t e r i s paribus, i n order t o i s o l a t e cause and e f f e c t r e l a t i o n s h i p s . In a l a t e r s e c t i o n , these c h a r a c t e r i s t i c s w i l l be recombined i n t o whole tenures f o r f u r t h e r a n a l y s i s . 2.3.1 Comprehensiveness The degree of comprehensiveness i n c l u d e d i n tenures may be important i n determining whether government o b j e c t i v e s are f u r t h e r e d . If property r i g h t s are l e s s than completely comprehensive — f o r example, i f timber r i g h t s a r e granted s e p a r a t e l y from m i n e r a l r i g h t s — then resource a l l o c a t i o n may be ad v e r s e l y a f f e c t e d . Whether non-comprehensive r i g h t s c r eate such problems depends upon whether the b e n e f i t s of s p e c i a l i z a t i o n i n the management of separate resources i n v o l v e d exceed, or are l e s s than, the costs of foregoing i n t e g r a t e d management. 20 For example, timber management and o i l exploration and e x p l o i t a t i o n are h i g h l y d i f f e r e n t i a t e d operations each r e q u i r i n g s p e c i a l i z e d management s k i l l s . Their separation may insure that s p e c i a l i z e d management allows operations to be c a r r i e d out i n an optimal manner. On the other hand, exploration and production a c t i v i t i e s i n the o i l industry can se r i o u s l y d i s r u p t f o r e s t management and can r e s u l t i n major costs f o r the f o r e s t industry, as witnessed i n many parts of northern Alberta and northeastern B r i t i s h Columbia. If comprehensiveness i s not determined by government p o l i c y , markets w i l l weigh the opposing costs of s p e c i a l i z e d versus comprehensive management, as long as the resources i n question are marketed, and determine optimal resource a l l o c a t i o n s . However, problems of non-comprehensiveness frequently a r i s e with respect to forest land because a number of important forest a c t i v i t i e s — for example, various forms of outdoor r e c r e a t i o n , landscape, water and erosion c o n t r o l — are not normally d i s t r i b u t e d through conventional market channels. Governments sometimes transfer r i g h t s to marketed products, such as timber and forage, to the p r i v a t e sector, while r e t a i n i n g i n the p u b l i c domain the r i g h t s to non-marketed products. In so doing, i t i s maintained non-marketed products can be produced i n s o c i a l l y d e s i r a b l e q u a n t i t i e s and q u a l i t i e s . Nonetheless, the t h e o r e t i c a l e f f i c i e n c i e s of coordinated land use under a sing l e management regime are s a c r i f i c e d . 2.3.2 Duration The duration or term of a tenure can be expected to have an impact on the investment behavior of tenure holders, since i t s p e c i f i e s a time horizon within which returns on an investment must be recouped. If an investment w i l l provide an acceptable return within the duration of a 21 tenure, then the investor's behavior w i l l be unaffected. However, r e s t r i c t i n g the duration of a tenure i s l i k e l y to cause some investments to be l i q u i d a t e d prematurely while others w i l l simply not be undertaken, even though t h e i r net s o c i a l benefits are p o s i t i v e . Pejovich (1984) discussed the e f f e c t s of r e s t r i c t e d time horizons on management. Any r e s t r i c t i o n of term, he pointed out, provides incentives to postpone costs and bring forward b e n e f i t s . To drive home hi s point, Pejovich posed the following questions: "Do you take better care of the car you own or the car you rent? Do you take better care of the house you own or the house you rent?" The duration of a tenure, and i t s e f f e c t on tenure holders, depends not only on i t s i n i t i a l term, but whether or not the tenure may be renewed. A tenure which may be renewed with complete c e r t a i n t y may be e s s e n t i a l l y the same as a perpetual tenure. However, because governments may not allow renewals, or may change tenure c h a r a c t e r i s t i c s so that a tenure holder does not want to renew, a degree of uncertainty enters into the duration of tenures. This point w i l l be further discussed i n Section 2.3.6-which deals with s e c u r i t y . Despite the a l l o c a t i v e b e n e f i t s of r i g h t s granted i n perpetuity, government attenuation of t h i s c h a r a c t e r i s t i c frequently occurs. The longer the duration of tenures, the less c o n t r o l governments may have over e x t e r n a l i t i e s and d i s t r i b u t i o n s . Long tenures leave governments with le s s f l e x i b i l i t y to meet the needs of changing conditions (Pearse, 1976). 22 2.3.3 T r a n s f e r a b i l i t y The importance of t r a n s f e r a b i l i t y of r i g h t s i n promoting the e f f i c i e n t use of resources i s well documented i n the l i t e r a t u r e : De A l e s s i (1980), Demsetz (1967), Pearse (1976), Scott (1984). T r a n s f e r a b i l i t y allows the market to d i r e c t resources to t h e i r highest use. In so doing, resource users gain from comparative advantage, s p e c i a l i z a t i o n and economies of scale. Changes i n resource a l l o c a t i o n s are also necessary among uses to adapt to changes i n market factors which may include, among other things, tastes, technology, and incomes. A d d i t i o n a l l y , transfers of property r i g h t s can correct i n i t i a l m isallocations of resources which may exi s t f o r a v a r i e t y of reasons. R e s t r i c t i o n s on t r a n s f e r a b i l i t y may take two general forms. F i r s t transfers may be r e s t r i c t e d because of l i m i t e d markets i n which to s e l l assets. Imperfect markets may e x i s t because of monopsony c o n t r o l . A small number of buyers may be able to suppress market p r i c e s f o r assets, thereby reducing the t r a n s f e r a b i l i t y of tenure holders' property. Second, t r a n s f e r s of assets may be r e s t r i c t e d by the government. For example, the government may wish to r e s t r i c t the t r a n s f e r a b i l i t y of property r i g h t s . In the case of fo r e s t r y , tenures often have s t i p u l a t i o n s that any transf e r of r i g h t s must have governmental approval. The a b i l i t y to transfer property r i g h t s has important e f f e c t s on investment behavior. R e s t r i c t i o n s on t r a n s f e r a b i l i t y have p a r t i c u l a r l y serious implications f o r investments with long time horizons. It has been pointed out (see for example Dowdle, 1984) that a major r e s t r i c t i o n to investments i n timber i s not that investment periods are very long, which i s conventional wisdom, but that opportunities for disposing of goods i n 23 process are constrained because t r a n s f e r a b i l i t y i s r e s t r i c t e d . That i s , despite 100 year timber r o t a t i o n s , investments may be made i n r e f o r e s t a t i o n provided t h e i r expected net present values are p o s i t i v e and there are no b a r r i e r s to the sale of immature forest stands. 5 Even an o l d man w i l l invest i n tree p l a n t i n g i f he can s e l l 10-year-old saplings to a young man for a p r i c e which r e f l e c t s expected future net revenues. Without such opportunities, investors are faced with an all-or-nothing s i t u a t i o n . That i s , i f they choose to invest i n tree planting, they must accept that t h e i r assets w i l l be frozen for up to a 100 years or more. Few investors are w i l l i n g to give up l i q u i d i t y to t h i s degree and, under such circumstances, i t i s l i k e l y that neither the o l d man nor the young man w i l l be persuaded to e s t a b l i s h timber crops. A study conducted by Peat, Marwick and Partners (1981) supported these behavioral hypotheses. Interviews with forest industry executives across Canada showed a reluctance to invest i n non-transferable assets which could not be l i q u i d a t e d before maturity. Even though the case f o r f r e e l y transferable r i g h t s i s strong, reasons may e x i s t to r e s t r i c t t r a n s f e r s . Pearse (1976) l i s t e d three reasons which may be important enough to r e s t r i c t t r a n s f e r a b i l i t y i n f o r e s t resources: "Avoiding excessive concentration of timber r i g h t s , regional or l o c a l monopolies, s t r a t e g i c geographical advantages, or other impediments to competition. F o r e s t a l l i n g c o n s o l i d a t i o n or r e l o c a t i o n of i n d u s t r i a l a c t i v i t y that s e r i o u s l y c o n f l i c t s with community or regional s t a b i l i t y or development o b j e c t i v e s . 5. Other f a c t o r s which influence s i l v i c u l t u r a l investments i n f o r e s t tenures are discussed i n Chapter 5. 24 Maintaining a suitable balance between domestic and foreign ownership and c o n t r o l . " In addition to c o n t r o l l i n g the t r a n s f e r of property r i g h t s per se, r e s t r i c t i o n s on t r a n s f e r a b i l i t y may also extend to products a r i s i n g from the use of property. For example, i n Canada there are both p r o v i n c i a l and federal controls on the export of logs. Forest land owners, or licensees, are free to s e l l domestically the logs they produce, but must obtain a permit i n order to s e l l them to foreign buyers. P r o v i n c i a l r e s t r i c t i o n s even control i n t e r - p r o v i n c i a l log d e l i v e r i e s . Such r e s t r i c t i o n s e x i s t to create jobs that r e s u l t from value added i n wood manufacturing. However, l i m i t a t i o n s on market opportunities reduce the p o t e n t i a l value of logs and standing timber and, by depressing anticipated rates of return on timber production, have a negative impact on investment a c t i v i t i e s (Pearse, 1984b). Transfers may also be prevented because of the transactions costs involved i n negotiating and implementing t r a n s f e r s . In t h i s case, however, no misallocations w i l l r e s u l t i f the p a r t i e s involved c o r r e c t l y p r e d i c t that transactions costs exceed the p o t e n t i a l b e n e f i t s of r e a l l o c a t i o n . 2.3.4 Right of Tenure Holder to Economic Benefits Property holders' r i g h t s to economic ben e f i t s determine the value of r i g h t s and have a major impact on the returns to investments. Tenure holders' r i g h t s to capture the economic ben e f i t s which can be generated within the constraints of t h e i r property r i g h t frameworks are frequently l i m i t e d by taxes, user fees and other charges they are required to pay. With respect to forest land, such payments include:, property taxes; 25 stumpage charges; r o y a l t i e s ; land rents; and various charges l e v i e d i n return f o r s p e c i f i c services such as f i r e protection or timber s c a l i n g . In add i t i o n to the magnitude and incidence of such payments, the manner i n which they are l e v i e d i s of extreme importance i n promoting economic e f f i c i e n c y and determining investment behavior. For example, ad valorem property taxes on forested lands can have serious negative impacts on property holders' investment plans (Pearse, 1976) while other methods of taxation, such as systems based on land p r o d u c t i v i t y , may be neutral i n t h e i r behavioral impact or may be used to encourage investments i n timber production. Stumpage l e v i e d on a log scale basis may encourage high-grading, while that l e v i e d on a unit area basis may encourage more complete u t i l i z a t i o n of the timber resource (Nautiyal and Love, 1971). As w i l l be shown i n a l a t e r chapter, the a b i l i t y of property holders to capture economic be n e f i t s i s affe c t e d by a number of other important c h a r a c t e r i s t i c s and i s a c r u c i a l determinant of t h e i r economic behavior. 2.3.5 Exclusiveness In the absence of exclusive r i g h t s , common property p r e v a i l s with a l l i t s well documented problems. Scott (1955), Hardin (1968) and Cheung (1970) have a l l pointed out the i n e f f i c i e n c i e s that occur when i n d i v i d u a l users have no inc e n t i v e to conserve because benefits derived from conservation are l i k e l y to be captured by others. No i n d i v i d u a l has an inc e n t i v e to invest i n the management or renewal of a resource held i n common since there i s no guarantee of returns. Labor and c a p i t a l inputs are applied to the use of common property to the point where the values of t h e i r average products — not t h e i r marginal products — are equal to t h e i r p r i c e s (Cheung, 1970). 26 In s p i t e of these many problems, common property may s t i l l be preferable to exclusive r i g h t s i n c e r t a i n cases. Cheung (1970) and others have pointed out that transactions costs of de f i n i n g , negotiating, and enforcing exclusive r i g h t s may be greater than the b e n e f i t s achieved by avoiding i n e f f i c i e n c i e s of common property. That i s , the costs of i n t e r n a l i z i n g the external costs and benefits associated with common property may be p r o h i b i t i v e . As f a r as timber a l l o c a t i o n i s concerned, common property i s generally not a problem, at least i n the developed world, since exclusive r i g h t s are normally granted. A notable exception can be found i n Newfoundland where a f i v e kilometer coastal s t r i p e x i s t s around the isl a n d within which exclusive r i g h t s have not been established to timber. Within t h i s common property s t r i p , any resident may apply for a permit to make use of the timber resource. However, some forest a t t r i b u t e s frequently have c h a r a c t e r i s t i c s of common property. These include such things as wilderness r e c r e a t i o n and many types of game for hunting. Such resources remain i n common property status for eit h e r t r a d i t i o n a l or c u l t u r a l reasons, or because transactions costs associated with the granting of exclusive r i g h t s are p r o h i b i t i v e . 2.3.6 Security Security i s somewhat d i f f e r e n t from the other tenure c h a r a c t e r i s t i c s . Security i s not a c h a r a c t e r i s t i c which defines a s p e c i f i c r i g h t of property. Instead, s e c u r i t y r e f e r s to the c e r t a i n t y of the s o c i o - p o l i t i c a l environment i n which the r i g h t s are granted. Therefore, s e c u r i t y depends on tenure holders' perceptions of the s t a b i l i t y of t h e i r tenure framework. An 27 insecure tenure holder i s one who expects changes w i l l reduce the benefits he may receive while a secure tenure holder perceives changes to be minor, b e n e f i c i a l , or absent. Security may play a c r u c i a l r o l e i n a f f e c t i n g resource a l l o c a t i o n s by i n f l u e n c i n g investment behavior. 6 Any expected change i n a tenure framework, at the time of tenure renewal or otherwise, which the tenure holder perceives as being harmful w i l l reduce the benefits of investments. P o t e n t i a l investment returns, weighted by the p r o b a b i l i t y of non-renewal of r i g h t s and the p r o b a b i l i t y of unfavorable changes i n tenure provisions, may y i e l d cash flows which are s i g n i f i c a n t l y below the l e v e l s necessary to encourage optimum investment from a s o c i a l point of view. Experience suggests that property r i g h t s to f o r e s t land and timber resources i n Canada are subject to a good deal of uncertainty. For example, i n 1947, Forest Management Licences i n B r i t i s h Columbia were granted i n perpetuity, only to have t h e i r terms reduced to 21 years, renewable i n 1978 (Haley, 1985). In 1975, l e g i s l a t i o n i n Quebec revoked a l l of the forest industry's Timber Limits, t r a n s f e r r i n g management r e s p o n s i b i l i t i e s to the p u b l i c sector (Smith, 1977). In 1982, the New Brunswick government canceled a l l e x i s t i n g tenures and completely r e a l l o c a t e d c u t t i n g r i g h t s (Watson, 1984). Despite the uncertainty that tenure changes cause, i t may be necessary to a l t e r agreements to better accommodate changing s o c i a l values or other unforeseeable f a c t o r s . 6. The e f f e c t of tenure security on investment behavior w i l l be discussed further i n Chapter 4. 28 2.3.7 Use R e s t r i c t i o n s R e s t r i c t i o n s on resource uses can r e s u l t i n the same problems as r e s t r i c t i o n s on the transfe r of r i g h t s . Regulations which p r o h i b i t resources from being used i n c e r t a i n ways may prevent them from fin d i n g t h e i r highest and best use. Such problems can r e s u l t from any zoning regulations such as the creation of dedicated park lands, f o r e s t reserves, and a g r i c u l t u r a l reserves. C l e a r l y , such r e s t r i c t i o n s reduce the value of rig h t s since they place a constraint on the tenure holder's r i g h t to economic b e n e f i t s . When such use r e s t r i c t i o n s are l i f t e d or relaxed, r i g h t holders may enjoy w i n d f a l l gains. Use r e s t r i c t i o n s are frequently designed to prevent or mitigate negative e x t e r n a l i t i e s and may r e s u l t i n s o c i a l benefits which more than compensate for the opportunity costs of foregoing r e a l l o c a t i o n . 2.3.8 Allotment Type Property r i g h t s to a resource may be granted without specifying a geographical area i n which the r i g h t s must be exercised. Such r i g h t s frequently take the form of a quota or bag-limit. This i s true of f i s h and w i l d l i f e resources and also of timber. Some fo r e s t tenures simply give t h e i r holder the r i g h t to harvest p e r i o d i c a l l y a c e r t a i n volume of timber from a general region or timber management unit, t i t l e to the land i t s e l f remaining with the Crown. Such arrangements provide public agencies f l e x i b i l i t y i n managing and a l l o c a t i n g land. Problems e x i s t with volume based tenures which have caused some tenure allotments to be area based. Volume allotments may not provide incentives f o r tenure holders to manage the resource optimally over the 29 long term. Holders of these types of tenures occupy any s p e c i f i c p a r c e l of land only very f l e e t i n g l y — usually 1 to 5 years — while they harvest the timber. Since they have no guarantee that they w i l l ever return to the same area, they may not have incentives to invest i n tree planting, encourage natural regeneration, or even harvest the timber i n ways which w i l l preserve the p r o d u c t i v i t y and i n t e g r i t y of the s i t e . Such tenure arrangements may impose heavy transactions costs on society since the enforcement of regulations i n the p u b l i c i n t e r e s t must be p a r t i c u l a r l y 7 rigorous. Furthermore, i f s t i p u l a t i o n s require tenure holders to conduct management a c t i v i t i e s , any s i t e s p e c i f i c knowledge gained from operating on a s p e c i f i c piece of land i s l o s t when the tenure holder moves to a new c u t t i n g area. 2.3.9 Size S p e c i f i c a t i o n The s p e c i f i e d s i z e of a tenure may have an influence on i t s tenure holder's economic behavior. On the one hand, tenures may not be large enough to take f u l l advantage of economies of s c a l e . On the other hand, they may be so large that they lead to the creation of l o c a l monopolies and monopsonies. If property r i g h t s are transferable and d i v i s i b l e within a f r e e market, then there w i l l be a tendency for tenures to adjust to a point where most p r i v a t e economies of scale can be captured. However, when e x t e r n a l i t i e s e x i s t , as they frequently do i n the case of f o r e s t tenures, 7. Although more rigorous enforcement costs of volume based tenures are l i k e l y to increase transactions costs, i t does not n e c e s s a r i l y follow that o v e r a l l transaction costs are lower for these types of tenures. Area based tenures may have a greater number of requirements to enforce thereby cr e a t i n g higher transaction costs. 30 then t h i s market determined s i z e may not be optimal from a s o c i a l viewpoint. For example, a tenure of optimum s i z e for timber production may be too small to provide adequately for the management of water q u a l i t y or w i l d l i f e populations. The optimum s i z e of tenure for management purposes, whether market-determined or l e g i s l a t e d , may be large enough to allow i n d i v i d u a l property r i g h t s holders to enjoy monopolistic or monopsonistic powers on a l o c a l b a s i s . This problem can be very serious with respect to forest land. In such cases, e f f i c i e n c y losses due to concentration, not to mention the s o c i o - p o l i t i c a l problems, may exceed the benefits of achieving some economies of scale. 2.3.10 Operational S t i p u l a t i o n s Contractual requirements, or operational s t i p u l a t i o n s , attached to tenures may a f f e c t the economic behavior of property r i g h t holders by reducing t h e i r entitlement to economic b e n e f i t s , thereby reducing property r i g h t s values and p o t e n t i a l returns. Operational s t i p u l a t i o n s , with respect to fo r e s t tenures, f a l l i n t o three main categories: management, harvesting, and processing. Management s t i p u l a t i o n s e x i s t to ensure that the timber resource i s conserved and perpetuated and generally include r e f o r e s t a t i o n and protection requirements. Harvesting s t i p u l a t i o n s are designed to minimize the negative impacts of timber harvesting, ensure s u f f i c i e n t u t i l i z a t i o n of the timber resource and enforce sustained y i e l d r e g u l a t i o n s . They include logging guidelines designed to protect s o i l , water and aesthetic values, u t i l i z a t i o n standards s t i p u l a t i n g the wood volumes that must be recovered 31 during harvesting operations and minimum and maximum p e r i o d i c cuts. Processing s t i p u l a t i o n s commonly require the property r i g h t s holder to b u i l d , or have i n operation, a timber processing f a c i l i t y of a c e r t a i n type and capacity. Such enforced v e r t i c a l i n t e g r a t i o n may severely l i m i t the market and investment options a v a i l a b l e to tenure holders. 2.3.11 Operational Control In administering tenures, governments must ensure that some l e v e l of tenure holders' performance i s enforced. The costs of operational c o n t r o l are e f f e c t i v e l y the p r i c e paid for administering an agreement between two p a r t i e s with sometimes c o n f l i c t i n g o b j e c t i v e s . They are the operating costs borne by both governments and p r i v a t e tenure holders for a l l the transactions required i n proceeding with an agreement designed to protect the i n t e r e s t s of both p a r t i e s . The l e v e l of operational c o n t r o l exerted on tenure holders by governments a f f e c t s firms by i n f l u e n c i n g the degree to which tenure s t i p u l a t i o n s must be followed. Furthermore, the degree of supervision and influence of governments i n the formation of company management plans a f f e c t s the s p e c i f i c practices a firm may choose. Tenure holders also incur costs i n t r y i n g to detect when, where, and how they w i l l be monitored and must p e r i o d i c a l l y submit plans describing t h e i r operations and i n t e n t i o n s . The government i s faced with costs of having to p o l i c e tenure holders' actions and p e r i o d i c a l l y review t h e i r plans. Governments may choose high l e v e l s of operational c o n t r o l i f they perceive the benefits of enforcing the regulations outweigh the 32 transactions costs of exerting c o n t r o l . However, transactions costs may become p r o h i b i t i v e making requirements nonenforceable. 2.4 THE PROBLEM THAT GOVERNMENTS FACE Each of the property r i g h t c h a r a c t e r i s t i c s described above v a r i e s across a wide spectrum of a l t e r n a t i v e s . ^ For example, property at one extreme may be f r e e l y transferable to any party under any conditions while, at the other extreme, transfers of r i g h t s i n any form are forbidden. Between the two extremes, d i f f e r i n g degrees of t r a n s f e r a b i l i t y are po s s i b l e . Any tenure framework can be described i n terms of the combination of s p e c i f i c c h a r a c t e r i s t i c s i t d i s p l a y s . Given the 11 tenure c h a r a c t e r i s t i c s described above, each varying over a broad range of a l t e r n a t i v e s , the number of combinations i s i n f i n i t e and o f f e r s a formidable problem to the p o l i c y analyst. A s t a r t i n g point f o r attempting to choose the optimum combination of c h a r a c t e r i s t i c s would be to consider each c h a r a c t e r i s t i c separately and attempt to determine the s o c i a l l y optimal s p e c i f i c a t i o n of the c h a r a c t e r i s t i c given the considerations discussed i n the l a s t section. Then, the s p e c i f i c a t i o n s could be adjusted, i f necessary, to r e f l e c t further welfare considerations not discussed. The i n d i v i d u a l l y s p e c i f i e d c h a r a c t e r i s t i c s could then be combined i n t o a whole tenure. This process would allow an optimum p o l i c y to be defined t h e o r e t i c a l l y f o r any i n d i v i d u a l tenure c h a r a c t e r i s t i c . However, i t 8. The one exception of a tenure c h a r a c t e r i s t i c which cannot be portrayed along a spectrum i s an allotment type which i s li m i t e d to being area or volume based. 33 presents a number of problems. Not only are i n d i v i d u a l c h a r a c t e r i s t i c s d i f f i c u l t to optimally specify, but aggregating i n d i v i d u a l c h a r a c t e r i s t i c s i n t o whole tenures presents enormous problems. While the s o c i a l costs of governmental and p r i v a t e c o n t r o l over property rights can be i d e n t i f i e d and described by analysts, p o l i t i c a l d e c i s i o n makers are needed to assign weights to various non-quantifiable welfare concerns. P o l i t i c a l systems are needed to i d e n t i f y and weigh such values and monitor changes i n these concerns over time. Also, there are problems of aggregation i n d e f i n i n g an optimum property rights framework which are of two sorts. F i r s t , whether a p a r t i c u l a r tenure best furthers governmental objectives depends upon the mix of tenure types within the p o l i t i c a l j u r i s d i c t i o n . Thus, i t may be impossible to define an optimum tenure without considering i t s place within the t o t a l tenure pattern for a whole p o l i t i c a l region or country. This point can be c l a r i f i e d with a simple example. Suppose that within a p a r t i c u l a r j u r i s d i c t i o n a l l the forest land i s p u b l i c l y owned and leased to the p r i v a t e sector under short-term, heavily regulated contracts. Major s o c i a l costs e x i s t due to the absence of market a l l o c a t i v e forces and, i n order to overcome t h i s problem, the government decides to p r i v a t i z e 25 percent of the forest land area. The p o l i c y i s successful, as measured by i t s p o l i t i c a l popularity, and the government reasons that i f 25 percent of the land i n p r i v a t e ownership i s good, then 50 percent should be b e t t e r . However, a f t e r p r i v a t i z i n g another 25 percent, the government finds decreasing public support for the program because the negative e x t e r n a l i t i e s r e s u l t i n g from forgone non-timber benefits now exceed the benefits of u t i l i z i n g market a l l o c a t i v e f o r c e s . In other words, the 34 government has discovered diminishing marginal returns to i t s p o l i c y of p r i v a t i z a t i o n . A form of tenure which i s optimal i n one context may be sub-optimal when the t o t a l tenure mix within a region i s modified. The second problem of aggregation occurs because property r i g h t s are highly interdependent. For example, the ri g h t of a tenure holder to economic b e n e f i t s i s a f f e c t e d by operational s t i p u l a t i o n s while the s i z e of a tenure may a f f e c t how transferable i t i s . Because of these i n t e r r e l a t i o n s h i p s , choosing an optimal point on one tenure c h a r a c t e r i s t i c may a f f e c t the optimum determination of another c h a r a c t e r i s t i c . In other words, an optimum tenure may not r e s u l t from optimally specifying each c h a r a c t e r i s t i c separately and aggregating the c h a r a c t e r i s t i c s into a s i n g l e tenure. The existence of the numerous interactions among tenure c h a r a c t e r i s t i c s complicates the already formidable task of optimally specifying a c h a r a c t e r i s t i c spectrum based on i n d i v i d u a l c h a r a c t e r i s t i c considerations. Given these complications, governments are faced with a seemingly i n s o l u b l e problem. However, the forgoing exposition i s not meant to create a sense of f u t i l i t y . On the contrary, i t i s meant to put the analyses which follow i n the context of the inherent l i m i t a t i o n s of the problem. Re a l i z i n g these l i m i t a t i o n s , i t becomes p o s s i b l e to seek areas for further useful study. 2.5 THE PROBLEM THIS STUDY WILL FACE Because the s p e c i f i c a t i o n of s o c i a l l y optimum forest tenures requires the consideration of welfare judgments, t h i s study w i l l not attempt to 35 recommend a tenure structure. Therefore, the contract economics question of what p a r t i c u l a r s p e c i f i c a t i o n of a contract i s optimal for a landlord i s beyond the scope of t h i s study. Instead, t h i s work w i l l concentrate on the concepts of constrained maximization, used i n contract economics and the property r i g h t s approach, to i n v e s t i g a t e the e f f e c t s of tenures on economic rent d i s t r i b u t i o n s , resource a l l o c a t i o n s , and s i l v i c u l t u r a l investments. With more information about the economic implications of various tenures, p o l i t i c a l d e c i s i o n makers, as landlords, w i l l be i n a better p o s i t i o n to address the question of an optimum tenure. In order to understand the economic implications of a l t e r n a t i v e tenures, i n t e r a c t i o n s between tenure c h a r a c t e r i s t i c s w i l l be analyzed. It i s not s u r p r i s i n g that tenure c h a r a c t e r i s t i c s are highly i n t e r r e l a t e d . Academics have only r e c e n t l y described property r i g h t s i n terms of t h e i r i n d i v i d u a l c h a r a c t e r i s t i c s i n order to i s o l a t e and study complex systems which have evolved for centuries as complete e n t i t i e s . Thus, one would expect tenure c h a r a c t e r i s t i c s to be i n t e r r e l a t e d because an evolved e n t i t y has been s i m p l i f i e d by disaggregating i t i n t o more e a s i l y understood parts. The remainder of t h i s thesis w i l l take up the task of analyzing whole tenures while concentrating on two sets of c h a r a c t e r i s t i c i n t e r a c t i o n s which w i l l allow us to i n v e s t i g a t e the three research questions posed i n Chapter 1. F i r s t , i n Chapter 3, e f f e c t s of other c h a r a c t e r i s t i c s on the r i g h t of tenure holder to economic benefits w i l l be reviewed. By analyzing these interdependencies, we w i l l address the f i r s t research question of how tenures a f f e c t rent d i s t r i b u t i o n s and resource a l l o c a t i o n s . Second, i n Chapter 4, the i n t e r a c t i o n s among sec u r i t y and the other c h a r a c t e r i s t i c s w i l l be analyzed i n order to assess the r o l e that tenure s e c u r i t y plays i n 36 a f f e c t i n g d i s t r i b u t i o n s and a l l o c a t i o n s . And l a s t , i n Chapter 5, the r o l e of c h a r a c t e r i s t i c interdependencies discussed i n Chapters 3 and 4 w i l l be drawn together to study s i l v i c u l t u r a l investment i n c e n t i v e s . 37 3. THE EFFECT OF TENURES ON THE DISTRIBUTION OF FOREST RENTS AND THE ALLOCATION OF RESOURCES This chapter w i l l address the question of how tenures a f f e c t the d i s t r i b u t i o n of economic rents and the a l l o c a t i o n of resources. In order to do t h i s , the f i r s t section w i l l review i n t e r a c t i o n s between the r i g h t of tenure holder to economic ben e f i t s , and other tenure c h a r a c t e r i s t i c s . Given these i n t e r a c t i o n s , we w i l l see how the s p e c i f i c a t i o n of tenure c h a r a c t e r i s t i c s : d i v i d e the a v a i l a b l e economic rent between the Crown and tenure holders, determine resource a l l o c a t i o n s , and determine how much economic rent i s a v a i l a b l e for governments to c o l l e c t . The chapter then turns to t e s t i n g the hypothesis that every c h a r a c t e r i s t i c may a f f e c t a tenure holder's b e n e f i t s . In order to do t h i s , a methodology i s developed to quantify tenure holders' perceptions of the costs of various tenure s t i p u l a t i o n s . Results of a case study among selected B r i t i s h Columbia tenure holders are presented which support the hypothesis and show which s t i p u l a t i o n s are most c o s t l y to tenure holders. 3.1 THEORY 3.1.1 Interactions Between the Right of Tenure Holder to Economic Benefits  and Other Tenure C h a r a c t e r i s t i c s In Section 2.3.4, i t was noted that the r i g h t of the tenure holder to economic benefits i s c r u c i a l i n a f f e c t i n g a tenure holder's behavior and b r i e f mention was made of the f a c t that t h i s c h a r a c t e r i s t i c i s af f e c t e d by many other tenure c h a r a c t e r i s t i c s . This section w i l l summarize these i n t e r r e l a t i o n s h i p s . 38 T r a n s f e r a b i l i t y r e s t r i c t i o n s take two forms. Both the transfer of tenures and the transfer of products derived from tenures may be r e s t r i c t e d . If tenure transfers are r e s t r i c t e d , r i g h t s w i l l be worth les s to tenure holders because of th e i r reduced l i q u i d i t y . If transfers of forest products are r e s t r i c t e d , then harvesting benefits to tenure holders w i l l a l s o be decreased unless stumpage systems p e r f e c t l y compensate for reduced sale p r i c e s by lowering stumpage costs. Even i f stumpages are lowered, depressed domestic prices l i m i t p o t e n t i a l benefits from v i a b l e management investments. Use r e s t r i c t i o n s may a f f e c t a tenure holder's b e n e f i t s i n a s i m i l a r way. If land use i s r e s t r i c t e d to the production of f o r e s t products, then i t i s p o s s i b l e that some benefits of moving the land i n t o a higher use are being forgone. A l l kinds of s t i p u l a t i o n s , (harvesting, processing, and management) a f f e c t tenure holders' benefits s i m i l a r l y . Any s t i p u l a t i o n which i s imposed on tenure holders represents a cost and thereby reduces t h e i r b e n e f i t s . 1 Operational c o n t r o l exercised by public agencies can also reduce a tenure holder's benefits by l i m i t i n g management choices and imposing transactions costs. Tenure holders who must continuously seek government 1. For example, i f a tenure holder found i t economical to b u i l d a plant, he would do so v o l u n t a r i l y . However, i f a tenure holder has to be forced to operate a plan t , the amount that the tenure holder would have to be paid to w i l l i n g l y b u i l d a plant i s the cost to the tenure holder of t h i s s t i p u l a t i o n . Despite the p o t e n t i a l costs to tenure holders of these s t i p u l a t i o n s , i t may also be that these "requirements" are a c t u a l l y b e n e f i c i a l to tenure holders. Such s t i p u l a t i o n s may be responsible for market concentration which r e s u l t s i n monopolistic power for tenure holders. 39 approval of t h e i r operations may encounter s i g n i f i c a n t reductions i n benefits due to these extra c o s t s . Comprehensiveness may a l s o a f f e c t a tenure holder's benefits i n that r i g h t s that are not included i n a tenure are r i g h t s from which benefits may not be derived. Type of allotment may a l s o a f f e c t tenure holders' b e n e f i t s . Area based tenures allow tenure holders to benefit from knowing where they w i l l be operating i n the future, while volume allotments leave tenure holders uncertain as to where they w i l l be operating. Conversely, volume allotments benefit tenure holders by d i s p e r s i n g the r i s k s of timber losses from f i r e s , i nsects, and diseases, while area allotments do not. Exclusive c u t t i n g r i g h t s mean that a tenure holder i s e x c l u s i v e l y e n t i t l e d to b e n e f i t s . Less than exclusive r i g h t s reduce benefits i n that others are given the opportunity to take a share. Duration a f f e c t s a tenure holder's b e n e f i t s by specifying a time horizon within which benefits must be captured. If the maturity of an investment l i e s outside of the duration of a tenure, then the tenure holder does not have access to benefits of the investment. F i n a l l y , tenure size may a f f e c t a tenure holder's b e n e f i t s . The s i z e of tenures d i c t a t e s whether or not economies of scale i n forest management and, sometimes, wood processing can be reached. Gaining economies of scale decreases average production costs allowing for greater net b e n e f i t s . 40 3.1.2 Rent D i s t r i b u t i o n s , Resource A l l o c a t i o n s , and the Right of Tenure  Holder to Benefits Forest rents exist i n two forms. F i r s t , there are rents embodied i n standing trees which e x i s t as a g i f t of nature. Second, there are rents that may be a t t r i b u t e d to the p r o d u c t i v i t y of the land as measured by i t s a b i l i t y to grow trees. A tenure holder's benefits can come from a share of either of these two types of rent. That i s , a tenure holder may derive rents from harvesting trees which are v i r g i n o ld growth, or from stands which have been produced during the tenure holder's term. Analysis i n t h i s chapter w i l l not d i s t i n g u i s h between these two types of rents, while Chapter 5 w i l l s p e c i f i c a l l y discuss land p r o d u c t i v i t y rents. When tenures are created through negotiations, or other means, the r e s u l t i n g c h a r a c t e r i s t i c s d i v i d e the rents of f o r e s t s between the two p a r t i e s . These negotiations are c r u c i a l to both p a r t i e s . On one hand, the government, representing society, seeks to further s o c i a l welfare, usually by capturing a share of rent and c o n t r o l l i n g e x t e r n a l i t i e s and income d i s t r i b u t i o n s . On the other hand, the government must allow tenure holders enough b e n e f i t s to entice them to enter, or invest i n , a tenure. Thus an important r o l e of tenures i s to d i v i d e the p o t e n t i a l b e n e f i t s , or rents, of a f o r e s t between the government, representing society at large, and the tenure holder. 2. Although the two types of rents are b i o l o g i c a l l y related, they are quite d i s t i n c t i n economic a n a l y s i s . After the rents of standing trees are captured, the benefits are "sunk" and thereby do not a f f e c t subsequent d e c i s i o n s . P r o d u c t i v i t y rents, enhanced by s i l v i c u l t u r a l investments, are captured by firms which make decisions independent of sunk b e n e f i t s . 41 When rents are d i v i d e d between the government and the tenure holder, rents are d i s t r i b u t e d and resources are a l l o c a t e d . C h a r a c t e r i s t i c s p e c i f i c a t i o n s which t r a n s f e r payments from the tenure holder to the Crown, such as stumpage and taxes, d i s t r i b u t e rents. However, attenuated c h a r a c t e r i s t i c s which reduce tenure holders' benefits do not always r e s u l t i n d i r e c t revenues to the government. Instead, the Crown may c o l l e c t " s o c i a l rents" which may take the form of c o n t r o l l i n g e x t e r n a l i t i e s or economic development. As i s the case with the d i s t r i b u t i v e c h a r a c t e r i s t i c s of taxes and fees, these a l l o c a t i o n a l benefits also r e s u l t from attenuations which reduce benefits of tenure holders and a v a i l a b l e rents. In t h i s way, the s p e c i f i c a t i o n of these c h a r a c t e r i s t i c s not only a l l o c a t e s resources, but also determines the d i s t r i b u t i o n of rents. The amount of rent c o l l e c t e d by governments i n the form of revenues i s f a i r l y easy to determine by adding up stumpage revenues, taxes, and other charges paid to the government. These are the factors which are included i n the tenure c h a r a c t e r i s t i c which describes the tenure holder's r i g h t to economic b e n e f i t s . However, since a l l other tenure c h a r a c t e r i s t i c s may a l s o a f f e c t a tenure holder's b e n e f i t s , how much rent are they absorbing i n order to f a c i l i t a t e a l t e r e d resource a l l o c a t i o n s ? The answer to t h i s question i s important because the attenuation of these c h a r a c t e r i s t i c s represents forgone rents. For example, i f tenure holders perceive harvesting u t i l i z a t i o n requirements as onerous, they would be w i l l i n g to pay higher stumpage i f the requirements were removed. The same i s true for any c h a r a c t e r i s t i c that i n f r i n g e s on a tenure holder's b e n e f i t s . If i t were known how much each attenuated c h a r a c t e r i s t i c was 42 c o s t i n g the p r i v a t e sector, then i t would be possible to see what the governments a l l o c a t i v e p o l i c i e s are costing i n terms of foregone revenues. Figure 1 shows how economic rents may be reduced i f tenure c h a r a c t e r i s t i c s are attenuated.^ In the Figure, some of the c h a r a c t e r i s t i c spectra discussed i n Chapter 2 are shown. The spectra are arranged so that those endpoints which represent points where no r i g h t s have been granted to the tenure holder are i n a locus at the center of the diagram. If the government chooses to allow tenure holders to have complete c o n t r o l of a l l c h a r a c t e r i s t i c s , then the rent a v a i l a b l e to be c o l l e c t e d i s maximized and represented by the area ABCDEFGH. However, i f a c h a r a c t e r i s t i c , such as duration, i s attenuated by the amount AA', then the amount of rent a v a i l a b l e for the government to c o l l e c t , i s decreased to A'BCDEFGH. In the case of attenuating duration, rents have gone to buying the government greater f l e x i b i l i t y to adjust to changing conditions. 3.2 HYPOTHESIS For the theory presented i n Section 3.1.2 on d i s t r i b u t i o n s and a l l o c a t i o n s to be relevant, the theory presented i n Section 3.1.1 on c h a r a c t e r i s t i c s a f f e c t i n g benefits of tenure holders must be accepted. Therefore, the remainder of t h i s chapter w i l l t e s t the hypothesis: the r i g h t of a tenure holder to economic be n e f i t s may be influenced by every tenure c h a r a c t e r i s t i c . 4 3. I am g r a t e f u l to Dr. A. D. Scott for suggesting t h i s diagram. 4. The e f f e c t s of security w i l l be analyzed separately i n Chapter 4. 43 Figure 1: Characteristic Attenuations and Economic Rent 44 The following methodology was developed to test t h i s hypothesis and c o l l e c t information on how much economic rent the attenuations of c h a r a c t e r i s t i c s are absorbing. 3.3 METHODOLOGY  3.3.1 Background The degree to which property r i g h t c h a r a c t e r i s t i c s i n Canadian f o r e s t tenures are attenuated has been studied by Haley and Luckert (1986). Every major tenure i n Canada was described i n terms of t h e i r i n d i v i d u a l c h a r a c t e r i s t i c s i n an attempt to specify as p r e c i s e l y as possible the property r i g h t s framework under which f o r e s t r y firms operate. Sources used to c l a s s i f y the tenures were p r o v i n c i a l forest acts and regulations, s p e c i f i c contracts negotiated by some tenure holders, a r t i c l e s written on tenures, and other studies which have sought to describe tenures. However, these sources were i n s u f f i c i e n t , i n some cases, to describe the c h a r a c t e r i s t i c s of some p r o v i n c i a l tenures. The study also faced problems of d i s t i n g u i s h i n g between de jure l e g i s l a t i v e information and de facto conditions under which tenures are 45 held. While the a r t i c l e s and studies reviewed offered some i n s i g h t s i n t o the s p e c i f i c a t i o n of some c h a r a c t e r i s t i c s , de facto information was generally unavailable. One probable reason why so l i t t l e i s known of de facto tenure c h a r a c t e r i s t i c s i s that they are d i f f i c u l t to discern. For example, while i t i s easy to determine whether tenures are transferable or not, i t i s more d i f f i c u l t to decide how tra n s f e r a b l e a tenure i s which may only be transferred with government approval. Furthermore, i t i s probable that l i t t l e i s known about de facto tenure c h a r a c t e r i s t i c s because they are l i k e l y to vary g r e a t l y among i n d i v i d u a l tenure holders within one tenure type. Several factors could cause these v a r i a t i o n s . F i r s t , tenure holders may po s s i b l y enjoy d i f f e r i n g r i g h t s depending on the p o l i t i c a l access and bargaining power they possess. Tenure s t i p u l a t i o n s are c o n t i n u a l l y under negotiation as new si t u a t i o n s a r i s e which require s p e c i f i c agreements between government and tenure holders within the more general tenure framework. A tenure holder with more p o l i t i c a l i nfluence may, over time, be able to secure enough s p e c i f i c changes to s h i f t the general s p e c i f i c a t i o n of a tenure c h a r a c t e r i s t i c . 5. Examples which i l l u s t r a t e t h i s problem abound i n B r i t i s h Columbia. By r e l y i n g s o l e l y on the B r i t i s h Columbia Forest Act, one would not recognize the s i g n i f i c a n c e of the "quota system" which existed u n o f f i c i a l l y i n the province f o r many years and which was a dominant fac t o r i n determining firms' behavior. Also, despite the f a c t that Forest Licences are defined i n the Forest Act as being volume based, tenure holders have negotiated with the province to form "chart areas" to l i m i t t h e i r operations to a more s p e c i f i c area. S i m i l a r l y , forest p o l i c y as set down i n p r o v i n c i a l act, regulations, and contracts i s constantly being r e - i n t e r p r e t e d within the p r o v i n c i a l f o r e s t service and at the m i n i s t e r i a l l e v e l . These interpretations sometimes appear as c i r c u l a r l e t t e r s to tenure holders or as in s t r u c t i o n s to fo r e s t service personnel. 46 Second, the degree to which a tenure c h a r a c t e r i s t i c i s attenuated does not only depend on i t s l e g a l s p e c i f i c a t i o n . The natural c h a r a c t e r i s t i c s of resources that tenures administer a l s o a f f e c t how severely a tenure holder's r i g h t s are attenuated. For example, log export r e s t r i c t i o n s do not l i m i t tenure holders who have no exportable logs. S i m i l a r l y , close u t i l i z a t i o n requirements do not a f f e c t tenure holders who v o l u n t a r i l y f i n d economic means to u t i l i z e wood below required standards. Third, there may be regional d i f f e r e n c e s i n the enforcement of tenure c h a r a c t e r i s t i c s despite the f a c t that de jure regulations do not specify exceptions. A government wanting to promote economic development i n a p a r t i c u l a r region may f a i l to enforce some requirements i n order to make a tenure economically v i a b l e . A l l of these problems i n determining de f a c t o tenure s p e c i f i c a t i o n s prevent a v a i l a b l e information from being useful i n analyzing the e f f e c t s of these s p e c i f i c a t i o n s on ben e f i t s of tenure holders. What i s needed i s some way to measure the many d i f f e r e n t attenuations of c h a r a c t e r i s t i c s which a f f e c t a tenure holder's benefits which would r e f l e c t the di f f e r e n c e s i n bargaining power, natural c h a r a c t e r i s t i c s , and regional enforcement of tenure s t i p u l a t i o n s . The procedures which follow was designed to achieve t h i s objective. 3.3.2 Procedures As discussed i n Chapter 2, each c h a r a c t e r i s t i c may be depicted along a spectrum representing an i n f i n i t e number of p o s s i b l e s p e c i f i c a t i o n s . The purpose of these procedures i s to specif y some point along each 47 c h a r a c t e r i s t i c spectrum i n terms of the e f f e c t that the attenuated c h a r a c t e r i s t i c has on tenure holders' benefits. Because no published data exist which adequately express the s p e c i f i c a t i o n of tenure c h a r a c t e r i s t i c s , i t was necessary to c o l l e c t the information from tenure holders through the use of i n t e r v i e w s . 6 The interview procedures employed were as follows: 1. The tenure holder was given a number of randomly shuf f l e d cards. Each card had printed on i t a hypothetical change i n p o l i c y i n the form of an i n d i v i d u a l tenure c h a r a c t e r i s t i c change. The group of cards contained two p o s s i b l e changes for each c h a r a c t e r i s t i c being measured; one which proposed an increase i n government c o n t r o l , and one which proposed a decrease i n government co n t r o l . For example, one card would propose free t r a n s f e r a b i l i t y of tenures, while another would propose no t r a n s f e r s of tenures be allowed. 2. The tenure holder was asked to sort the cards i n t o three p i l e s according to how the proposed change would a f f e c t the p o t e n t i a l benefits a tenure holder may derive from a tenure: 1) a p i l e that would increase, 2) a p i l e that would decrease, and 3) a p i l e that would have no e f f e c t on t h e i r p o t e n t i a l b e n e f i t s . 3. The tenure holder was asked to order the cards: 1) i n the harmful p i l e from most harmful to least harmful, and 2) i n the b e n e f i c i a l p i l e from most b e n e f i c i a l to least b e n e f i c i a l . This provided o r d i n a l rankings of the hypothetical p o l i c y changes. 6. Interviews were used, as opposed to questionnaires, for two primary reasons. F i r s t , given the small size of the populations to be sampled (see Section 3.4.2), a high response rate was c r u c i a l . It was thought that the personal contact of interviewing tenure holders would increase t h i s r a t e . The high response rates achieved show the use of interviews to have been a good d e c i s i o n . Second, procedures for obtaining ratings on a r a t i o scale are complicated and therefore would not be amenable to questionnaires. An interviewer was needed to a s s i s t the interviewee with the procedures. 48 4. The tenure holder was asked to assign to each of the p o l i c y cards ratings of how harmful or b e n e f i c i a l the hypothetical p o l i c y change would be. Ratings are assigned by laying the cards down on a scale ranging from -10 to 10, where -10 i s most harmful, 10 i s most b e n e f i c i a l and 0 i s a point of reference where there i s no e f f e c t . The tenure holders are given a scale with equal appearing i n t e r v a l s between the r a t i n g numbers and asked to pay s p e c i f i c a t t e n t i o n to these i n t e r v a l s when assigning r a t i n g s . 7 The end r e s u l t i s a r a t i o scale with c a r d i n a l r a t i n g s . The above procedure f u l f i l l s the purpose of the methodology. Data c o l l e c t e d may be used to test the hypothesis that tenure c h a r a c t e r i s t i c s may influence benefits of tenure holders, and also show how much rent i s being absorbed by various attenuations of tenure c h a r a c t e r i s t i c s . Figure 2 i l l u s t r a t e s how the c o l l e c t e d data may be turned i n t o useful information. To begin, the hypothetical p o l i c y change of each c h a r a c t e r i s t i c p r i n t e d on the cards defines the end-points of the spectrum. For example, Figure 2 shows that t r a n s f e r a b i l i t y spectrum endpoints are defined by proposed p o l i c y changes of eliminating tenure transfer r e s t r i c t i o n s and the elimination of tenure t r a n s f e r s . The p o l i c y changes proposed during the interviews have three important features. F i r s t , changes are worded to be marginal i n order to get ratings which r e f l e c t the costs and benefits to the tenure holder r e l a t i v e to the status quo. Second, changes are worded so that only the e f f e c t s of binding s t i p u l a t i o n s are measured. If an a c t i v i t y i s done v o l u n t a r i l y , then the s t i p u l a t i o n i s not constraining the tenure holder's behavior. And l a s t , p o l i c y changes are presented holding a l l other tenure c h a r a c t e r i s t i c s constant i n order to i s o l a t e the e f f e c t s of changes to i n d i v i d u a l c h a r a c t e r i s t i c s . 7. Thurstone and Chave (1929) pioneered the process of using equal appearing i n t e r v a l s to obtain proportional r a t i n g s . 49 Hypothetical Changes Printed on Cards a. elimination of tenure transfer r e s t r i c t i o n s b. no tenure transfers allowed I I Spectrum D e f i n i t i o n Free Transferability No T r a n s f e r a b i l i t y Rating the Spectrum End-Points a . «= +3 b. - -5 I Spectrum S p e c i f i c a t i o n Free Transferabiity +3 +2 +1 0 -1 No T r a n s f e r a b i l i t y -2 -3 - 4 -5 1 J ±- JL 1 JL I Descriptive Numbers 1. Freedom Rating = r a t i n g a. • +3 2. Attenuation Rating « r a t i n g b.. • -5 3. Relative Importance Number « abs (+3) + abs(-5) * 8 4. Freedom Ratio • Freedom Rating/Relative Importance Number « 3/8 - 0.375 Figure 2: The Measurement of Tenure C h a r a c t e r i s t i c Attenuations 50 The c h a r a c t e r i s t i c spectra were defined by hypothetical p o l i c y changes of tenure c h a r a c t e r i s t i c s thought most l i k e l y to a f f e c t the benefits of tenure holders. The magnitudes of the changes were chosen so that endpoints of spectra were as f a r apart as p o s s i b l e , while considering the p l a u s i b i l i t y of the changes. Hypothetical p o l i c y changes for the sample described i n Section 3.4.2 are contained i n the t h i r d parts of Appendices A, B, and C. The distance from the tenure holder's p o s i t i o n on the spectrum to the end-points of the spectrum, i n terms of benefits and costs borne by the tenure holder, i s the r a t i n g the tenure holder gives to each change. For example, Figure 2 shows that i f f r e e t r a n s f e r a b i l i t y of tenures i s given a r a t i n g of +3 and the elimination of transfers i s given a r a t i n g of -5, the p o s i t i o n of the tenure holder on the spectrum would be 3 points away from free t r a n s f e r a b i l i t y and 5 points away from no transfers allowed. The r a t i n g of +3 i s the freedom r a t i n g and i n d i c a t e s how b e n e f i c i a l the elimination of a r e s t r i c t i o n would be. In t h i s way, freedom ratings estimate how much current tenure t r a n s f e r r e s t r i c t i o n s are costing a tenure holder. The r a t i n g of -5 i s the attenuation r a t i n g and indicates how much worse o f f the tenure holder could be i f no tenure t r a n s f e r s were allowed. The p o t e n t i a l importance of a c h a r a c t e r i s t i c i n a f f e c t i n g a tenure holder's benefits may also be derived from these r a t i n g s . Continuing the above example, the e n t i r e spectrum has been awarded 8 r a t i n g points. That i s , t h i s c h a r a c t e r i s t i c spectrum has been awarded a r e l a t i v e importance  number of 8 out of a possible maximum of 20. This number may be compared 8. A maximum of 20 comes from the absolute value of the sum of the two maximum p o s s i b l e ratings of +10 and -10. 51 to the r e l a t i v e importance numbers of other c h a r a c t e r i s t i c s to see which c h a r a c t e r i s t i c s have the greatest p o t e n t i a l to a f f e c t a tenure holder's b e n e f i t s . A d d i t i o n a l l y , the p o s i t i o n of the tenure holder between the end-points of the spectrum may be expressed by using the attenuation and freedom r a t i n g s . Continuing the above example, t h i s tenure holder would have a tenure transfer freedom r a t i o of 3/8. That i s , for the spectrum defined by the p r i n t e d cards, the tenure holder i s 3/8 of the distance from the l e a s t r e s t r i c t i v e end, moving towards the most r e s t r i c t i v e end. 3.4 A BRITISH COLUMBIA CASE STUDY The procedures described above were administered to selected tenure holders i n B r i t i s h Columbia. 3.4.1 Tenures i n B r i t i s h Columbia In B r i t i s h Columbia, approximately 96% of the forested land i s owned by the p r o v i n c i a l government (see Table 1, Chapter 1). Table 2 shows p r o v i n c i a l wood volumes committed by tenure type as of March 31, 1986. Two tenure types, Forest Licences and Tree Farm Licences, comprise approximately 80% of the t o t a l p r o v i n c i a l volume commitment ( B r i t i s h Columbia M i n i s t r y of Forests, 1986). Pr i v a t e land i n B r i t i s h Columbia comprises approximately 3% of the t o t a l forested land (see Table 1, Chapter 1). Private lands may be i n one TABLE 2: BRITISH COLUMBIA VOLUMES COMMITTED BY TENURE TYPE AS OF MARCH 31, 1986 Tenure Type Thousands of Cubic Meters Forest Licence Tree Farm Licence Timber Sale Licence (minor) Timber Sale Harvesting Licence Forest Service Reserve Timber Sale Licence (major) Woodlot Licence Special Licences Total 38,905 18,627 4,910 2,223 1,096 815 467 4,884 Source: B r i t i s h Columbia M i n i s t r y of Forests, 1986. 53 of several tax c l a s s i f i c a t i o n s . 9 Table 3 l i s t s and describes the tax c l a s s i f i c a t i o n s of private f o r e s t lands. 3.4.2 The Sample The choice of which tenures to sample was made with the objectives of Chapter 5 i n mind. In Chapter 5, the study w i l l i n v e s t i g a t e whether incentives for voluntary investments i n s i l v i c u l t u r e e x i s t on various tenure types. For reasons to be discussed i n Chapter 5, i t was thought that incentives could exist on Tree Farm Licences. Furthermore, p r i v a t e lands c l a s s i f i e d as Taxation Tree Farms and Crown Granted Timber Land were thought to possibly have s i l v i c u l t u r a l investment incent i v e s . Therefore, these three tenure types were chosen to comprise the sample. 1^ 1 A b r i e f d e s c r i p t i o n of each of these tenure types f o l l o w s . 1 1 9. As of January 1, 1987, new l e g i s l a t i o n was put in t o a f f e c t which changed the taxation p o l i c y for priv a t e lands. Despite these changes, f o r two reasons the study proceeded as i f these tenures had not yet changed. F i r s t l y , at the time that data was c o l l e c t e d , very l i t t l e was known about p a r t i c u l a r s of the new regulations and many of the interview questions would have been unanswerable i f the new tenures were the subject of an a l y s i s . However i n Chapter 4, t h i s study does attempt to f i n d out tenure holder's expectations about what the new l e g i s l a t i o n w i l l b r ing. Secondly, because Chapter 5 of t h i s study w i l l seek to explain past management expenditures, the tenures as they existed when the expenditure decisions were made must be analyzed. 10. Forest Licences were not chosen to be part of the sample because i t was thought that these tenures do not have incentives f o r s i l v i c u l t u r a l investments. Forest Licences are volume based tenures. Thus, licencees are not guaranteed that they w i l l return to the area where t h e i r investments are made. 11. Besides changes i n taxation p o l i c y (see footnote 9), there have also been recent changes which have a f f e c t e d Tree Farm Licences. The following d e s c r i p t i o n r e f l e c t s the tenure as i t was at the time of study before the p o l i c y changes. The f i n a l chapter w i l l discuss the new p o l i c i e s . TABLE 3: BRITISH COLUMBIA TAX CLASSIFICATIONS FOR PRIVATE FOREST LANDS UP UNTIL JANUARY 1, 1987 C l a s s i f i c a t i o n Description 1. Timber Land Land held for f o r e s t r y purposes and cur r e n t l y supporting a minimum average volume of merchantable timber of 94 cubic meters per hectare on the Coast and 59 cubic meters per hectare i n the I n t e r i o r . 2. Forest Land Land i n Old Temporary Tenures Outside of Tree Farm Licences. 3. Tree Farm Land Land c e r t i f i e d as Taxation Tree Farms and managed according to an approved management plan. 4. Wild Land Land i n l o t s greater than 2 hectares that does not f i t i n t o the preceding categories or any non-forest category and does not contain substantial improvements. 5. Rural Land Land that does not f a l l i n t o any of the preceding categories or any other c l a s s i f i c a t i o n . Sources: B r i t i s h Columbia Assessment Act, 1979; Haley, 1981. 55 Crown Granted Timber Lands, (referred to i n t h i s study as Crown Grants), are forest lands which have been given, or sold to the p r i v a t e sector by the Crown. These lands have r e l a t i v e l y few property r i g h t c h a r a c t e r i s t i c s attenuated; although taxes payable to the Crown and log export r e s t r i c t i o n s may g r e a t l y a f f e c t benefits of Crown Grant holders. Taxation Tree Farms are Crown Granted lands which are being managed according to plans approved by government. The tenure holder i s required to follow: Ministry of Forests and Lands guidelines for p r o t e c t i n g environmentally s e n s i t i v e areas; u t i l i z a t i o n requirements; and s t i p u l a t i o n s which require the forest be protected from f i r e , i n s e c t s and disease. Plans of tenure holders must include the c a l c u l a t i o n of an allowable annual cut which may be increased i f investments i n forest management can be shown to increase future y i e l d s . In return for g i v i n g up some autonomy of operations, holders of Taxation Tree Farms receive tax concessions. Tree Farm Licences give tenure holders exclusive r i g h t s to an allowable annual cut of timber within the area of the tenure holder's l i c e n c e . Licences are granted for 25 years and may be replaced with a new l i c e n c e every 10 years for an a d d i t i o n a l 25 years. Tree Farm Licences are granted to holders who, among other things, intend to operate a timber processing plant. Licencees are required to submit plans which follow M i n i s t r y of Forests and Lands: environmental p r o t e c t i o n guidelines; harvesting u t i l i z a t i o n requirements; and provide for the p r o t e c t i o n of f o r e s t s from f i r e , insects and disease. Following harvesting, r e f o r e s t a t i o n i s undertaken by the Licencee who i s reimbursed with c r e d i t s which may be deducted from stumpage fees. If the licencee can convince the M i n i s t r y of 56 Forests and Lands that increased y i e l d s w i l l r e s u l t from management expenditures, then the allowable annual cut may be increased. Tree Farm Licences are made up of Schedule B lands, and any combination of Schedule A Timber Licence lands, and Crown Grants, some of which are held as Taxation Tree Farms. Schedule B lands are Crown lands for which tenure holders pay stumpage and annual rents. Schedule A Timber Licence lands are h i s t o r i c c u t t i n g r i g h t s , (known as Old Temporary Tenures), which have lower harvesting fees, i n the form of statutory r o y a l t i e s , and lower annual rents than Schedule B lands. In return for lower stumpage fees, owners must provide road access to the timber and re f o r e s t without reimbursement. The amalgamation of these d i f f e r e n t types of holdings are managed as one Tree Farm Licence under a sin g l e management plan. As of the end of 1985, there were 30 Tree Farm lice n c e s , 52 Taxation Tree Farms, and hundreds of Crown Timber Land Grants within the province of B r i t i s h Columbia. However, not a l l of these tenures were held by separate firms. Twenty firms held the 30 Tree Farm Licences; t h i r t y - s i x firms held the 52 Taxation Tree Farms; and the hundreds of Crown Grants were held by 57 firms or i n d i v i d u a l s . As many tenure holding firms as possible were interviewed. Interviews were conducted with questions r e f e r r i n g to a s p e c i f i c tenure holding. Only one interview for each tenure type for a given tenure holder was administered because of the excessive time requirements and tediousness 12. Because Taxation Tree Farms and other Crown Grants within Tree Farm Licences are managed under the Tree Farm Licence management plan, they were surveyed with Tree Farm Licences and i n t h i s study are r e f e r r e d to as Crown Granted Lands within Tree Farm Licences. 57 that would have been experienced by tenure holders possessing several holdings of one tenure type. Of the 20 firms holding Tree Farm Licences, interviews were granted by 19 companies. Of the 36 firms that held Taxation Tree Farms, several were included i n Tree Farm Licences. Furthermore, several Taxation Tree Farm holders have t h e i r lands managed by the same consulting firm. This l e f t 23 companies, i n c l u d i n g consultants, which managed Taxation Tree Farms outside of Tree Farm Licences. Interviews were granted by 22 of these companies. Of the 57 firms holding Crown Grants, 20 were interviewed. ! 3 f l 4 When interviewing each firm and tenure type, the interviewer sought the person who was most f a m i l i a r with the costs of attenuations of tenure c h a r a c t e r i s t i c s , and who was responsible for a l l o c a t i n g funds for s i l v i c u l t u r a l investments between d i f f e r e n t tenure types. In the case of large corporations, t h i s person was most often the Chief Forester or Vice President of planning and operations. In the case of smaller firms, the owners themselves were interviewed. 13. Because several firms held more than one tenure type, several tenure holders were the subject of more than one interview. A t o t a l of 43 firms were interviewed. 14. Because such a large proportion of the tenure holders were sampled, a common p r a c t i c e would be to adjust s t a t i s t i c a l r e s u l t s to r e f l e c t the increased representation of the population. S p e c i f i c a l l y , the variance of the sample mean could be reduced by a f a c t o r of (N-n)/(N-l), where n i s the number of observations drawn from a population of N i n d i v i d u a l s (see, for example, Wonnacott and Wonnacott, 1977). Although using such a factor could reduce mean variances of d e s c r i p t i v e numbers by up to 75%, t h i s f actor w i l l not be used so that the r e s u l t s presented are conservative. Conservatism i s warranted because of the new approach used to measure tenure c h a r a c t e r i s t i c s . 58 3.5 RESULTS 3.5.1 Interpreting the Results There are two primary problems that were a n t i c i p a t e d when the methodology was designed which should be considered when i n t e r p r e t i n g the following r e s u l t s . F i r s t , i t was expected that the interdependencies between c h a r a c t e r i s t i c s would make i t d i f f i c u l t to i s o l a t e cost or benefit e f f e c t s of i n d i v i d u a l changes of c h a r a c t e r i s t i c s . For example, i t was thought that i t would not be easy to conceptualize changes i n allotment type i n i s o l a t i o n of other c h a r a c t e r i s t i c s . For t h i s reason, tenure holders were i n s t r u c t e d during the interviews to: "assume that a l l c h a r a c t e r i s t i c s , other than the change p r i n t e d on the card, are held constant" (see Appendices A-C). Despite these e x p l i c i t i n s t r u c t i o n s , the r e s u l t s obtained for h i g h l y interdependent c h a r a c t e r i s t i c s , such as allotment type, should be i n t e r p r e t e d with caution. The second problem an t i c i p a t e d was that there would be d i f f e r e n c e s i n the a b i l i t i e s of tenure holders to take account of both micro and macro e f f e c t s i n t h e i r r a t i n g of the p o l i c y changes. For example, freeing log exports would r e s u l t i n micro benefits to the tenure holder of access to higher log p r i c e s for exports. However, the change would a l s o have macro e f f e c t s which influence the whole economy. Domestic log p r i c e s would increase thereby increasing costs for tenure holders with m i l l s who buy logs from the Vancouver log market. 1^ However, most p o l i c y changes proposed 15. In the case of f r e e i n g log exports, tenure holders seemed to take account of the r e s u l t i n g increases i n log p r i c e s as i s evidenced by the r e l a t i v e l y low freedom r a t i n g assigned to the elimination of log export r e s t r i c t i o n s by Tree Farm Licence holders (Table 6). 59 would not l i k e l y have large macro e f f e c t s on the economy, so i t was thought that the d i f f e r e n c e s i n the a b i l i t i e s of tenure holders to assess macro ef f e c t s would not play a large r o l e i n a f f e c t i n g t h e i r r a t i n g s . In i n t e r p r e t i n g the following r e s u l t s , i t should a l s o be remembered that these ratings do not n e c e s s a r i l y represent d o l l a r costs. Some of the smaller tenure holders interviewed had other objectives than maximization of p r o f i t s . Thus, the ratings of these tenure holders sometimes r e f l e c t e d personal perceptions of what they deemed to be s o c i a l l y d e s i r a b l e . The fa c t that the c h a r a c t e r i s t i c ratings include these perceptions provide for a more accurate a n a l y s i s of the true costs of attenuations to tenure holders. The large companies were found to respond with ratings which more d i r e c t l y r e f l e c t e d d o l l a r c o s t s . 1 6 F i n a l l y , i t should be noted that r e s u l t s between tenure types are not d i r e c t l y comparable. Whereas an average r a t i n g of +5 by Taxation Tree Farm holders could represent a cost of $100 per hectare, the same ra t i n g may represent a much higher or lower cost to Crown Grant holders. In order to make comparisons, scales of each tenure type must be pegged to a common d o l l a r value. Comparisons of t h i s sort w i l l be made i n Chapter 5. 3.5.2 Results of Specifying the E f f e c t of Tenure C h a r a c t e r i s t i c s on the  Right of Tenure Holder to Economic Benefits The econometrics computer program SHAZAM (White and Horseman, 1986) was used to process data and c a l c u l a t e s t a t i s t i c s f o r the d e s c r i p t i v e 16. It i s not s u r p r i s i n g that small tenure holders were found to have multiple objectives while larger corporations were found to better f i t the assumption of p r o f i t maximization. Forest economists have had problems applying economic theory to the behavior of small non-i n d u s t r i a l p r i v a t e holders. 60 numbers described i n Figure 2. Tables 4-6 show, re s p e c t i v e l y , mean values of the d e s c r i p t i v e numbers for Crown Grants, Taxation Tree Farms, and Tree Farm Licences. C h a r a c t e r i s t i c spectra have been ordered from largest to smallest mean values of freedom r a t i n g s . Summary s t a t i s t i c s f o r each tenure type and d e s c r i p t i v e number are presented i n Appendix D. Following i s a discus s i o n of the r e s u l t s of each type of d e s c r i p t i v e number. 3.5.2.1 Freedom Ratings Freedom ra t i n g s are an i n d i c a t i o n of how much current attenuations of tenure c h a r a c t e r i s t i c s are costing tenure holders. They are a measure of the p o t e n t i a l b e n e f i t s a tenure holder may receive by moving to the most un r e s t r i c t e d endpoint on the spectrum. By seeing how b e n e f i c i a l removing the r e s t r i c t i o n s would be, i t becomes evident how c o s t l y they are perceived to be by tenure holders. It was expected that the ratings assigned by tenure holders to re l a x i n g tenure requirements would be p o s i t i v e . Although most freedom ratings were p o s i t i v e , a few tenure holders thought reducing r e s t r i c t i o n s to have an adverse e f f e c t on the p o t e n t i a l benefits they receive from t h e i r tenures. There were several reasons c i t e d by tenure holders for negative freedom r a t i n g s . F i r s t , some tenure holders f e l t that eliminating r e s t r i c t i o n s might disrupt some competitive advantage that they c u r r e n t l y possess. For example, tenure holders who v o l u n t a r i l y follow harvesting guidelines might not l i k e s t i p u l a t i o n s for others to be lessened because of the comparative advantage competitors might gain. 61 TABLE 4: MEAN VALUES OF CROWN GRANT DESCRIPTIVE NUMBERS Freedom Attenuation R e l a t i v e Freedom C h a r a c t e r i s t i c Rating Rating Importance Ratio Spectrum Means Means Means 1 Means 1 1. Property Taxes 5.75 + -6.83" 12.88 + 0.47 2. Environmental Protection Guidelines 1.58+ -2.39" 3.96 + 0.36 3. Forest Protection S t i p u l a t i o n s 1.16+ -2.00" 3.26 + 0.28 4. Log Export controls 0.75 -1.33" 4.88 + 0.40 ** ** 1. Relative importance number and freedom r a t i o means are the average of i n d i v i d u a l tenure holder's numbers. As such, they are not equivalent to values c a l c u l a t e d from mean values of freedom and attenuation r a t i n g s . + P o l i c y changes with mean ratings s i g n i f i c a n t l y greater than zero at the 5% l e v e l of s i g n i f i c a n c e . P o l i c y changes with mean ratings s i g n i f i c a n t l y less than zero at the 5% l e v e l of s i g n i f i c a n c e . * Mean r a t i o expected to be 0.50, H Q: u E C=0.50. ** Mean r a t i o expected to be 0.50 and the sample mean supports the n u l l hypothesis at the 5% l e v e l of s i g n i f i c a n c e . 62 TABLE 5: MEAN VALUES OF TAXATION TREE FARM DESCRIPTIVE NUMBERS Ch a r a c t e r i s t i c Spectrum  Freedom Rating Means Attenuation Rating Means Rel a t i v e Importance Means 1 Freedom Ratio Means 1 1. Property Taxes 7.47 -8.02" 2. Log Export Controls 4.09 + -4.09" 3. Penalties For Cutting Under the AAC 3.44 + -3.17" 4. Penalties For Cutting Over the AAC 2.03 + -1.86" 5. Non-Voluntary Planning Costs 2.06 + -1.81" 6. Sustained Y i e l d Cut Controls 1.75+ 2 7. Harvesting U t i l i z a t i o n Requirements 0.93 -2.51" 8. Environmental Protection Guidelines 0.89 -3.09" 9. Forest Protection S t i p u l a t i o n s 0.07 -2.52" 10. Annual Allowable Cuts 0.02 -6.57" 11. Reforestation Requirements -1.24 -1.51" 12. ACE 4 Provisions 5 -3.50" 15.49 T 8.41 + 6.61 + 5.26 + 3.92 + 3.66 + 4.47 + 4.30 + 3.01 + 8.54+ 3.47 + 3.50 + 0.45 0.52 0.48 0.47 0.55 1.00-0.34 0.19 0.14 0.15 0.13 0.00' Po l i c y changes with mean ratings s i g n i f i c a n t l y greater than zero at the 5% l e v e l of s i g n i f i c a n c e . P o l i c y changes with mean ratings s i g n i f i c a n t l y l e s s than zero at the 5% l e v e l of s i g n i f i c a n c e . 63 TABLE 5 CONTINUED Mean r a t i o expected to be 0.50, H u: u-^O.SO. Mean r a t i o expected to be 0.50 and the sample mean supports the n u l l hypothesis at the 5% l e v e l of s i g n i f i c a n c e . R e l a t i v e importance number and freedom r a t i o means are the average of i n d i v i d u a l tenure holder's numbers. As such, they are not equivalent to values c a l c u l a t e d from mean values of freedom and attenuation r a t i n g s . No attenuation ratings were c o l l e c t e d for t h i s c h a r a c t e r i s t i c . Freedom r a t i o of 1.00 occurs because no attenuation ratings were c o l l e c t e d for t h i s c h a r a c t e r i s t i c . The Allowable Cut E f f e c t (ACE) provisions allow holders to increase t h e i r current cuts i n return for investments i n forest management which can be shown to increase future y i e l d s . No freedom ratings were c o l l e c t e d for t h i s c h a r a c t e r i s t i c . Freedom r a t i o of 0.00 occurs because no freedom ratings were c o l l e c t e d for t h i s c h a r a c t e r i s t i c . 64 TABLE 6: MEAN VALUES OF TREE FARM LICENCE DESCRIPTIVE NUMBERS C h a r a c t e r i s t i c Spectrum  Freedom Attenuation Rating Rating Means Means Relative Freedom Importance Ratio Means 1 Means 1 1. Ce r t a i n t y of Replacement Opportunity 2. Stumpage Fees 3. Road Building Reimbursements 4. Tenure Terms 5. Management Expenditure Reimbursements 6. Period Before Section 88 2 Reimbur sements 7. Penalties For Under-cutting the AAC 8. Harvesting U t i l i z a t i o n Requirements 9. Accumulated Section 88 2 C r e d i t s 10. Sustained Y i e l d Cut Controls 11. Penalties For Over-cutting the AAC 12. Environmental Protection Guidelines 13. Property Taxes on Tree Farm Licence Crown Grants 6.75 + 6.29 + 6.00 + 5.95 + 5.83 + 5.51 + 3.05 + 2.39 + 2.36 + 2.00 + -6.72" -6.93" -4.66" -3.83" -5.23" -2.17" 3.20 + -2.21" -5.00" -4.38" 3 2.24 + -2.47" -3.50" 13.47 + 13.22 + 10.66 + 9.90+ 11.33 + 8.67 + 5.67 + 8.05 + 7.88 + 3.47 + 4.71 + 5.76 + 0.49 0.46 0.65 0.57 0.47 0.55 0.57 0.34* 0.46 1.004 0.45 0.31 1.921 -2.32" 4.241 0.45 65 TABLE 6 CONTINUED C h a r a c t e r i s t i c Spectrum  Freedom Rating Means Attenuation Rating Means Relative Importance Means 1 Freedom Ratio Means 1 14. Schedule A Royalty Charges 1.61+ 15. Log Export Controls 1.36+ 16. Tenure T r a n s f e r a b i l i t y 1.32+ 17. Non-Voluntary Planning Costs 1.28+ 18. Forest Protection S t i p u l a t i o n s 0.82 19. Annual Allowable Cuts 0.73 20. Reforestation Requirements 0.54 21. Processing S t i p u l a t i o n s -0.16 22. Allotment Type 5 23. ACE 7 Provisions 5 24. Adding Royalty Fees to Crown Grants 5 -2.17" -1.18 -4.00" -1.68" -1.25" -7.54" -2.75" 3 -4.66" -3.97" -1.08 3.78 + 3.30 + 5.80 + 3.88 + 3.07 + 11.17 + 4.09 + 1.21 + 5.71 + 3.97 + 2.34 + 0.40 0.60 0.25 0.37 ** 0.40 0.36 0.15 1.004 0.00 6 0.00 6 0.00 6 25. Adding Property Taxes to Tree Farm Licence Timber Licences 5 -1.04" 1.04+ 0.00 66 TABLE 6 CONTINUED Po l i c y changes with mean ratings s i g n i f i c a n t l y greater than zero at the 5% l e v e l of s i g n i f i c a n c e . P o l i c y changes with mean ratings s i g n i f i c a n t l y less than zero at the 5% l e v e l of s i g n i f i c a n c e . Mean r a t i o expected to be 0.50, H°: u E C=0.50. Mean r a t i o expected to be 0.50 and the sample mean supports the n u l l hypothesis at the 5% l e v e l of s i g n i f i c a n c e . Relative importance number and freedom r a t i o means are the average of i n d i v i d u a l tenure holder's numbers. As such, they are not equivalent to values c a l c u l a t e d from mean values of freedom and attenuation r a t i n g s . Section 88 of the B r i t i s h Columbia Forests Act allows approved expenditures on forest management to be subtracted from stumpage fees. No attenuation ratings were c o l l e c t e d f o r t h i s c h a r a c t e r i s t i c . Freedom r a t i o of 1.00 occurs because no attenuation ratings were c o l l e c t e d for t h i s c h a r a c t e r i s t i c . No freedom ratings were c o l l e c t e d f o r t h i s c h a r a c t e r i s t i c . Freedom r a t i o of 0.00 occurs because no freedom ratings were c o l l e c t e d for t h i s c h a r a c t e r i s t i c . The Allowable Cut E f f e c t (ACE) provisi o n s allow holders to increase t h e i r current cuts i n return f o r investments i n forest management which can be shown to increase future y i e l d s . 67 Also, some smaller tenure holders l i k e d to be r e s t r i c t e d because of the benefits they perceived from being regulated by government. A few tenure holders had the a t t i t u d e that the government knew best and that the r e s t r i c t i o n s that the government imposed upon them would enable them to maximize t h e i r personal b e n e f i t s . L a s t l y , some tenure holders believed that r e s t r i c t i o n s placed on them created a better s o c i e t y . Being part of society, they as i n d i v i d u a l s personally benefited from the r e s t r i c t i o n placed on them. Despite these a t t i t u d e s , a vast majority of tenure holders, responded with p o s i t i v e ratings to f r e e i n g r e s t r i c t i o n s . A p r i o r i , i t was expected that on average property taxes would be the most c o s t l y c h a r a c t e r i s t i c for Crown Grant and Taxation Tree Farm holders. Tables 4 and 5 show t h i s to be the case with the highest mean ratings i n support of e l i m i n a t i n g property taxes. However, on average Taxation Tree Farm holders a l s o rated log export r e s t r i c t i o n s as heavily attenuating t h e i r b e n e f i t s . Furthermore, they also rated as highly b e n e f i c i a l several changes d e s c r i b i n g d i f f e r e n t cut control reductions. Tree Farm Licence holders, on average, rated an assured opportunity to replace t h e i r l i c e n c e as more b e n e f i c i a l than elimination of stumpage fees. Likewise, they rated perpetual tenure terms highly. Also rated highly were complete reimbursement of a v a r i e t y of costs and several changes describing d i f f e r e n t cut c o n t r o l reductions. In Section 3.2, i t was hypothesized that a l l tenure c h a r a c t e r i s t i c s had the p o t e n t i a l to a f f e c t a tenure holder's b e n e f i t s . More s p e c i f i c a l l y , i n t h i s section i t i s hypothesized that attenuations of tenure 68 c h a r a c t e r i s t i c s would generally reduce a tenure holder's b e n e f i t s . To support these hypotheses, mean ratings given to freeing c h a r a c t e r i s t i c 1 7 attenuations, u F C , should be s i g n i f i c a n t l y greater than zero. S t a t i s t i c a l tests were done on a l l freedom ratings of c h a r a c t e r i s t i c s to see i f they were s i g n i f i c a n t l y greater than zero: H 0 : u F C = 0 H 1:u F C>0 a=5%. Po l i c y changes i d e n t i f i e d with plus signs i n Tables 4-6 i n d i c a t e changes which were rated s i g n i f i c a n t l y greater than zero at the 5% l e v e l of s i g n i f i c a n c e . A l l observations of freedom r a t i n g s , both p o s i t i v e and negative, were used i n the t e s t s . In Table 4, a l l mean values of freedom ratings for Crown Grant holders are shown to be s i g n i f i c a n t l y greater than zero except for the elimination of log export r e s t r i c t i o n s . Although c o a s t a l Crown Grant holders i n general d i d see the e l i m i n a t i o n of export r e s t r i c t i o n s as b e n e f i c i a l , holders i n the I n t e r i o r with no exportable logs rated the change negative. I n t e r i o r Crown Grant holders, with none of t h e i r p o t e n t i a l wealth at stake, generally wanted to see wood processing jobs kept i n Canada. In Table 5, six of eleven mean values of freedom ratings for Taxation Tree Farm holders are shown to be s i g n i f i c a n t l y greater than zero. Doubling of the allowable annual cut was seen as harmful by several Taxation Tree Farm holders, causing t h i s change to not be s i g n i f i c a n t l y greater than zero. This r e s u l t was not too s u r p r i s i n g because doubling the allowable annual cut i n i s o l a t i o n of other changes i n c h a r a c t e r i s t i c s i s not 17. Where C i s the Cth c h a r a c t e r i s t i c C=l-4 f o r Crown Grants, C = l - l l for Taxation Tree Farms, and C=l-21 for Tree Farm Licences. 69 n e c e s s a r i l y an o v e r a l l reduction of r e s t r i c t i o n s . If tenure holders are penalized f or under-cutting an allowable annual cut which would l i q u i d a t e t h e i r stands f a s t e r than they desired, then t h e i r operation would be adversely a f f e c t e d by the increased cut. That i s , tenure holders are r e s t r i c t e d by the f a c t that an allowable annual cut, with a required minimum, s t i l l e x i s t s . But, several Taxation Tree Farm holders believed t h e i r current allowable annual cuts accurately r e f l e c t e d sustained y i e l d o b j e c t i v e s , which they supported. Eliminating harvesting u t i l i z a t i o n requirements, environmental p r o t e c t i o n guidelines, forest protection requirements, and r e f o r e s t a t i o n requirements on Taxation Tree Farms also were not given ratings s i g n i f i c a n t l y greater than zero. Many Taxation Tree Farm holders indicated that these requirements were not a f f e c t i n g them. That i s , they were v o l u n t a r i l y doing more than the requirements s t i p u l a t e d , so eliminating the requirements would have no e f f e c t . Other Taxation Tree Farm holders thought el i m i n a t i n g these requirements would harm society i n general and thereby harm them. In Table 6, seventeen of twenty-one mean values of freedom ratings for holders of Tree Farm Licences are shown to be s i g n i f i c a n t l y greater than zero. Once again, doubling the allowable annual cut was i n s i g n i f i c a n t because several Tree Farm Licence holders thought the change to be harmful. Many tenure holders ind i c a t e d that they would be forced to face under-c u t t i n g p e n a l t i e s i f t h e i r allowable annual cut was doubled, or possibly run out of wood i n the future. The e l i m i n a t i o n of protection, r e f o r e s t a t i o n , and processing requirements for Tree Farm Licence holders was also i n s i g n i f i c a n t . Tenure 70 holders i n the i n t e r i o r , for the most part, i n d i c a t e d that eliminating protection requirements was i n s i g n i f i c a n t because the Crown i s responsible for a l l p r o t e c t i o n a c t i v i t i e s . Coastal tenure holders, i n general, indicated minor p r o t e c t i o n r e s p o n s i b i l i t i e s which were not onerous. Lack of concern about the elimination of r e f o r e s t a t i o n requirements was probably due to f a i r l y complete reimbursement for t h i s management a c t i v i t y . Furthermore, i t may be that Tree Farm Licence holders derive some benefits from investing i n r e f o r e s t a t i o n . 1 ^ Eliminating processing requirements was probably i n s i g n i f i c a n t because the costs of these requirements to tenure holders were sunk. Having already b u i l t a plant, s t i p u l a t i o n s which required the i n i t i a l construction of a plant were said to not require the continuation of processing o p e r a t i o n s . 1 9  3.5.2.2 Attenuation Ratings Attenuation Ratings are an i n d i c a t i o n of how c o s t l y increasing s t i p u l a t i o n s further would be to tenure holders. They are a measure of the p o t e n t i a l costs to tenure holders of moving to the most r e s t r i c t i v e points of the c h a r a c t e r i s t i c spectra. The ratings assigned by tenure holders to the attenuation of tenure c h a r a c t e r i s t i c s were expected to be negative. Although most attenuation ratings were negative, a few tenure holders thought increasing r e s t r i c t i o n s would increase the p o t e n t i a l b e n e f i t s of t h e i r tenures. The reasons why 18. This w i l l be further investigated i n Chapter 5. 19. Despite the p o s s i b i l i t y that processing requirements may not be r e s t r i c t i n g holders of tenures, the p o t e n t i a l e f f e c t of these requirements on firms entering a tenure should not be ignored. Forced v e r t i c a l i n t e g r a t i o n could l i m i t a tenure holder's b e n e f i t s , and could promote s o c i a l l y undesirable monopolistic concentrations (see Section 2.3.10). Other i m p l i c a t i o n of processing s t i p u l a t i o n s w i l l be discussed i n the f i n a l chapter. 71 tenure holders may consider r e s t r i c t i o n s to be b e n e f i c i a l were discussed i n Section 3.5.2.1. As was the case with the freedom ratings of Crown Grants and Taxation Tree Farms, expectations were that increasing property taxes would be most c o s t l y to these tenure holders. Tables 4 and 5 show t h i s to be the case. A l l other hypothetical increased s t i p u l a t i o n s to holders of Crown Grants were rated as generally equivalent, but with much lower mean values. Other changes i n Taxation Tree Farm arrangements which rated highly included halving of the tenure holders' allowable annual cuts and elimination of log exports. In Table 6, Tree Farm Licence holders rated halving allowable annual cuts as being most harmful with doubling stumpage fees following. Next most harmful was doubling the p r o b a b i l i t y of not having an opportunity to replace t h e i r tenure. As described i n Section 3.5.2.1, s t a t i s t i c a l tests were done to see i f the r e s u l t s supported the hypothesis that a l l tenure c h a r a c t e r i s t i c s have the p o t e n t i a l to a f f e c t benefits of tenure holders. More s p e c i f i c a l l y , tests were done to see i f the further attenuation of tenure c h a r a c t e r i s t i c s would reduce tenure holders' b e n e f i t s . For these hypotheses to be supported, mean ratings given to attenuating c h a r a c t e r i s t i c s , u A C 2 C \ should be s i g n i f i c a n t l y l e s s than zero. S t a t i s t i c a l t e s t s were done on a l l attenuation ratings of c h a r a c t e r i s t i c s to see i f they were s i g n i f i c a n t l y less than zero: 20. Where C i s the Cth c h a r a c t e r i s t i c C=l-4 for Crown Grants, C=l-5, 11-12 for Taxation Tree Farms, and C=l-9, 11-20, 22-25 for Tree Farm Licences. 72 H 0 : u A C = 0 H l : u A C < 0 a=5%. Po l i c y changes with minus signs i n Tables 4-6 i n d i c a t e changes which were rated s i g n i f i c a n t l y less than zero. A l l observations of attenuation ratings, both p o s i t i v e and negative, were used i n the t e s t s . In Tables 4 and 5, a l l Crown Grant and Taxation Tree Farm attenuation r a t i n g means are shown to be s i g n i f i c a n t l y less than zero. In Table 6, twenty-one of twenty-three attenuation r a t i n g means for Tree Farm Licence holders are s i g n i f i c a n t l y l e s s than zero. Those which were i n s i g n i f i c a n t were generally of l i t t l e concern to Tree Farm Licence holders. 3.5.2.3 Relat i v e Importance Numbers By combining freedom and attenuation r a t i n g s , we may see how important a given spectrum of a c h a r a c t e r i s t i c i s r e l a t i v e to other c h a r a c t e r i s t i c spectra. The r e l a t i v e importance of a given spectrum i s the t o t a l number of r a t i n g points assigned to the spectrum from one end to the other (see Figure 2). By adding the absolute value of freedom ratings (which represent the distance of the tenure holder from the l e a s t r e s t r i c t i v e end of the spectrum) with the absolute value of attenuation ratings (which represent the distance of the tenure holder from the most r e s t r i c t i v e end of the spectrum) we create a number which measures the r e l a t i v e importance of each e n t i r e spectrum i n i t s p o t e n t i a l to a f f e c t a tenure holder's b e n e f i t s . In c a l c u l a t i n g r e l a t i v e importance numbers, the prevalent s i t u a t i o n involved adding a p o s i t i v e freedom r a t i n g with the absolute value of a negative attenuation r a t i n g . However, when one or the other or both ratings had unexpected signs or were zero, d i f f e r e n t procedures were followed: 73 1. If both the freedom and the attenuation ratings of a spectrum were p o s i t i v e , the r e l a t i v e importance of the spectrum was taken to be the larger of the two numbers. 2. If both the freedom and attenuation ratings were negative, the r e l a t i v e importance of the spectrum was taken to be the largest absolute value r a t i n g . 3. If the freedom r a t i n g was negative and the attenuation r a t i n g p o s i t i v e , the r e l a t i v e importance of the spectrum was taken to be the sum of the absolute values. 4. If one or the other of the ratings was zero, the r e l a t i v e importance number was taken to be the absolute value of the non-zero r a t i n g . 5. If both of the ratings were zero, the r e l a t i v e importance number was taken to be zero. It was expected that the property tax spectrum would have the most p o t e n t i a l for a f f e c t i n g the benefits of Crown Grant and Taxation Tree Farm holders. Tables 4 and 5 show t h i s to be the case. Log exports a l s o rated highly f o r both types of tenure. Taxation Tree Farm holders a l s o i n d i c a t e d that a l t e r i n g cuts and cut penalties had a high p o t e n t i a l e f f e c t . Holders of Tree Farm Licences rated the c e r t a i n t y of having the opportunity to replace t h e i r tenure as having the greatest p o t e n t i a l to a f f e c t t h e i r b e n e f i t s . Stumpage fees, and management expenditure reimbursements also rated h i g h l y . In sections 3.5.2.1 and 3.5.2.2, i t was shown how most freedom ratings increased tenure holders' benefits while most attenuation ratings reduced tenure holder's be n e f i t s . Now, with both ends of the spectrum represented, t e s t s of s i g n i f i c a n c e were repeated for the mean value of r e l a t i v e importance numbers of c h a r a c t e r i s t i c s , u R I C 2 1 , to see i f r e s u l t s 21. Where C i s the Cth c h a r a c t e r i s t i c C=l-4 for Crown Grants, C=l-12 for Taxation Tree Farms, and C=l-25 for Tree Farm Licences. 74 supported the general hypothesis that every c h a r a c t e r i s t i c may a f f e c t a tenure holder's b e n e f i t s : H 0:u R I C=0 H 1 : u R I C X > l a=5%. In Tables 4-6, a l l c h a r a c t e r i s t i c spectra for a l l type of holdings are s i g n i f i c a n t l y greater than zero. That i s , survey r e s u l t s indicate that every c h a r a c t e r i s t i c has the p o t e n t i a l to a f f e c t a tenure holder's b e n e f i t s . 3.5.2.4 Freedom Ratios Having looked at the magnitude of the e f f e c t s of d i f f e r e n t c h a r a c t e r i s t i c s i n a f f e c t i n g a tenure holder's benefits, we now turn to i d e n t i f y i n g where, along a c h a r a c t e r i s t i c spectrum, a tenure holder l i e s . That i s , given the spectrum defined, how f a r i s a tenure holder from the most and least r e s t r i c t i v e ends? Freedom r a t i o s estimate the p o s i t i o n of a tenure holder on a c h a r a c t e r i s t i c spectrum from the perspective of the least r e s t r i c t i v e end of the spectrum (see Figure 2). The p o s i t i o n of the tenure holder i s expressed i n terms of that proportion of a l l possible attenuation costs that i s borne by the tenure holder. By t e l l i n g us how c o s t l y current c h a r a c t e r i s t i c attenuations are r e l a t i v e to complete government attenuation, freedom r a t i o s provide us with a measure of the e x i s t i n g p u b l i c - p r i v a t e mix of each c h a r a c t e r i s t i c spectrum. Ca l c u l a t i n g these r a t i o s involved d i v i d i n g a zero or p o s i t i v e freedom r a t i n g by a p o s i t i v e r e l a t i v e importance number of the c h a r a c t e r i s t i c s c r e a t i n g a zero or p o s i t i v e freedom r a t i o . However, a few freedom ratings were negative, producing negative freedom r a t i o s . If a spectrum's r e l a t i v e 75 importance number was a combination of either two negative, two p o s i t i v e , or two zero ratings, the freedom r a t i o was assigned a value of zero. In Tables 4-6, mean values f o r p o s i t i v e freedom r a t i o s are presented. The closer the mean values are to 1.00, the more attenuated i s the spectrum of the tenure c h a r a c t e r i s t i c . While interviewing tenure holders, many hypothetical p o l i c y changes were worded i n such a way that freedom r a t i o s of 0.50 were expected. For example, hypothetical changes of doubling and eliminating stumpage fees would be expected to have equal but opposite ratings, creating a freedom r a t i o of 0.50. To test whether expectations of the population mean, u E C 2 2 , were supported by sample r e s u l t s , hypothesis tests were conducted: H 0:u E C=0.5 H-^UgQ^O .5 a=5%. Asterisks i n Tables 4-6 i n d i c a t e spectra of c h a r a c t e r i s t i c s for which freedom r a t i o s of 0.50 were expected. Double a s t e r i s k s i n d i c a t e c h a r a c t e r i s t i c spectra for which the n u l l hypothesis was accepted. For holders of Crown Grants, 2 of 3 freedom r a t i o s that were expected to be 0.50 were not s i g n i f i c a n t l y d i f f e r e n t from 0.50. For Taxation Tree Farm holders, 5 of 8 a n t i c i p a t e d 0.50 freedom r a t i o means were not s i g n i f i c a n t l y d i f f e r e n t from 0.50, while 9 of 12 expected 0.50 r a t i o means were not s i g n i f i c a n t l y d i f f e r e n t from 0.50 for Tree Farm Licence holders. A l l mean values of freedom r a t i o s that were s i g n i f i c a n t l y d i f f e r e n t from 0.50 had lower values. A probable reason for these r e s u l t s i s r i s k 22. Where C i s the Cth c h a r a c t e r i s t i c C=l-3 for Crown Grants, C=l, 3-5, 7-9, 11 for Taxation Tree Farms, and C=l-2, 7-9, 11-14, 17-18, 20 f o r Tree Farm Licences. 76 aversion of tenure holders. Tenure holders may rate a loss of $100,000 a -5 while r a t i n g a gain of $100,000 only +3. Thus, r i s k averse tenure holders would have attenuation ratings higher than freedom ratings causing freedom r a t i o s to be less than 0.50. Two i n t e r r e l a t e d reasons are commonly c i t e d for firms being r i s k averse (see, for example, Sugden and Williams, 1978). F i r s t , i f a f i r m r i s k s large changes i n wealth, i t i s l i k e l y to be r i s k averse. Second, i f d i f f e r e n t r i s k s are i n t e r r e l a t e d , causing large amounts of wealth to be at r i s k , then a company w i l l l i k e l y be r i s k averse. 2"^ In interviewing holders of tenures, r i s k s of c h a r a c t e r i s t i c changes were found to be highly i n t e r r e l a t e d . That i s , tenure holders often indicated that although the ac t u a l attenuating change proposed would not be too harmful, they feared that such a change might open the door for a stream of r e s t r i c t i v e changes. Thus the elimination of a r e s t r i c t i o n would be rated 0 because of i t s i n s i g n i f i c a n c e to the tenure holder, yet the holder would rate increasing the r e s t r i c t i o n a -1 or -2 because of the far reaching implications the change could have. Such ratings created freedom r a t i o s of 0.00 which p u l l e d down mean values. 3.6 LOOKING AHEAD Results presented i n t h i s chapter have shown the importance of the s p e c i f i c a t i o n of tenures i n a f f e c t i n g tenure holder's b e n e f i t s . By a f f e c t i n g b e n e f i t s of tenure holders, tenures d i s t r i b u t e economic rents and 23. Both of these f a c t o r s cause firms to be r i s k averse because the u t i l i t y per d o l l a r of income to a fi r m l o s i n g large amounts of wealth i s thought to be greater than the u t i l i t y to a firm l o s i n g small amounts. 77 a l l o c a t e resources. However, thus f a r , we have ignored the p o s s i b i l i t y that the government, as l a n d l o r d , may wish to change the s p e c i f i c a t i o n of tenures. This p o s s i b i l i t y w i l l be explored i n the next chapter. 78 4. THE EFFECT OF SECURITY OF TENURE ON THE DISTRIBUTION OF FOREST RENTS AND THE ALLOCATION OF RESOURCES As the values of resources and society change, governments may f i n d i t necessary to change the s p e c i f i c a t i o n of tenures. This chapter w i l l i n v e s t i g a t e how these p o t e n t i a l changes may e f f e c t the d i s t r i b u t i o n of economic rents and the a l l o c a t i o n of resources. To do t h i s , the chapter w i l l t e s t the hypothesis that tenure holders expect t h e i r tenures to change i n ways which influence the benefits that they receive. In order to tes t t h i s hypothesis, a methodology i s developed to c o l l e c t q u a n t i t a t i v e data on the perceived security of tenure holders. Results of a case study among selected tenure types i n B r i t i s h Columbia are then presented which support the hypothesis and show which c h a r a c t e r i s t i c s tenure holders perceive as being uncertain. 4.1 THEORY In Chapter 2, considering s e c u r i t y of tenure introduced the p o s s i b i l i t y that tenure c h a r a c t e r i s t i c s may change. That i s , any c h a r a c t e r i s t i c of a tenure may change during a holder's term. Chapter 3 discussed how c h a r a c t e r i s t i c s which influence the bene f i t s of tenure holders a f f e c t rent d i s t r i b u t i o n s and resource a l l o c a t i o n s . If every c h a r a c t e r i s t i c has the p o t e n t i a l to a f f e c t a tenure holder's benefits and i f s e c u r i t y may change any c h a r a c t e r i s t i c , i t follows that s e c u r i t y may als o a f f e c t rent d i s t r i b u t i o n s and resource a l l o c a t i o n s . Although changes i n rent d i s t r i b u t i o n s between the government and the tenure holder w i l l occur only i f tenure s p e c i f i c a t i o n s are a c t u a l l y 79 a l t e r e d , changes i n resource a l l o c a t i o n s may be affected i f the tenure holders merely perceive a chance that there w i l l be changes i n c h a r a c t e r i s t i c s p e c i f i c a t i o n s . Because tenure c h a r a c t e r i s t i c s a f f e c t the amount of rent a v a i l a b l e to tenure holders, any change i n c h a r a c t e r i s t i c s a l t e r s expected rents. If expectations about future rents are a l t e r e d , investment de c i s i o n s , which a l l o c a t e resources, are modified. Thus, measuring the s e c u r i t y of a tenure w i l l help explain the investment incentives to be investigated i n Chapter 5. 4.2 HYPOTHESIS Results i n Chapter 3 supported the hypothesis that the s p e c i f i c a t i o n of tenures a f f e c t s the bene f i t s of tenure holders. It follows that i f c h a r a c t e r i s t i c s change, then tenure holder's benefits w i l l a l s o change. The remainder of t h i s chapter w i l l t e s t the following hypothesis: tenure holders expect t h e i r tenures to change i n ways which influence the future benefits that they receive. The following methodology was developed to tes t t h i s hypothesis and c o l l e c t information on which tenure c h a r a c t e r i s t i c s are perceived as being insecure by tenure holders. 4.3 METHODOLOGY  4.3.1 Background There are two components to be measured when analyzing the security of tenures. One i s the expected cost and benefit of a given change and the other i s the p r o b a b i l i t y of a given change occurring within a given period. The expected costs and be n e f i t s of a l l possible changes for the 80 c h a r a c t e r i s t i c of t r a n s f e r a b i l i t y are depicted i n Figure 3 by the assumed function: 0+X0- where X represents the tenure holder's point on the c h a r a c t e r i s t i c spectrum, and segments 0+X and X0- represent, r e s p e c t i v e l y , areas of expected b e n e f i c i a l and harmful change. 1 As a tenure holder's t r a n s f e r a b i l i t y of tenure i s increased, b e n e f i t s increase along X0 + increase u n t i l they reach a maximum with free t r a n s f e r a b i l i t y . As a tenure holder's t r a n s f e r a b i l i t y of tenure i s r e s t r i c t e d , the costs to the tenure holder increase along X0~ u n t i l they reach a maximum with no t r a n s f e r a b i l i t y . Figure 3B shows an assumed p r o b a b i l i t y density function f o r changes i n the p o s i t i o n , X, of the tenure holder. The p r o b a b i l i t y density function assumes, with i t s shape, that there i s a higher p r o b a b i l i t y of small changes i n the t r a n s f e r a b i l i t y of tenures than for large changes. 2 If these two functions were known for every c h a r a c t e r i s t i c spectrum then the security of a tenure holder within a c e r t a i n period could be expressed by the sum of the products of expected benefits and costs of changes (Figure 3A) and the p r o b a b i l i t y of t h e i r being changed (Figure 3B). Unfortunately, a s c e r t a i n i n g these functions f o r every c h a r a c t e r i s t i c would be p r a c t i c a l l y impossible. Such a methodology would f i r s t require proposing numerous changes, representing d i f f e r e n t points along the spectrum i n Figure 3A, and measuring the tenure holder's perceptions of 1. The functional form i n f i g u r e 3A i s only assumed to i l l u s t r a t e the concept of varying costs and benefits to tenure holders of d i f f e r e n t c h a r a c t e r i s t i c attenuations. The study does not assume t h i s f u n c t i o n a l form i n the methodology that follows. 2. The functional form i n Figure 3B i s only assumed to i l l u s t r a t e the concept of d i f f e r e n t p r o b a b i l i t i e s of c h a r a c t e r i s t i c changes. The study does not assume t h i s f u n c t i o n a l form i n the methodology that follows. 81 A . Benef i t s and Costs of Expected Changes E(0) I B. P r o b a b i l i t y Dens i ty Funct ion of Expected Changes PR(change) J Free T r a n s f e r a b i l i t y No T r a n s f e r a b i l i t y F i g u r e 3 : T h e o r e t i c a l Measurements of Tenure C h a r a c t e r i s t i c S e c u r i t y 82 expected b e n e f i t s and c o s t s of d i f f e r e n t changes. Then, the tenure holders would have to be asked to express t h e i r opinions on the p r o b a b i l i t y of change f o r each p o i n t along each c h a r a c t e r i s t i c spectrum, as shown i n Figure 3B. Even i f changes along the t r a n s f e r a b i l i t y spectrum could be described, i t i s d o u b t f u l that tenure holders would have a c l e a r enough idea of s p e c i f i c c o s t s , b e n e f i t s , and p r o b a b i l i t i e s . Even i f tenure holders d i d have a c l e a r knowledge of these v a l u e s , the time r e q u i r e d to determine values along each c h a r a c t e r i s t i c spectrum would be p r o h i b i t i v e . The f o l l o w i n g procedures were designed to avoid these problems and o b t a i n an accurate measurement of the p e r c e i v e d s e c u r i t y of tenure holders. 4.3.2 Procedures I t was necessary t o i n t e r v i e w tenure holders t o o b t a i n i n f o r m a t i o n about t h e i r p erceived s e c u r i t y . The i n t e r v i e w procedures were as f o l l o w s : 1. The tenure, holders were given a p i l e of randomly s h u f f l e d cards which had p o s s i b l e d i r e c t i o n s of change p r i n t e d f o r each tenure c h a r a c t e r i s t i c . For example, the card d e s c r i b i n g tenure t r a n s f e r a b i l i t y changes proposes the p o s s i b i l i t i e s of l ) i n c r e a s e s , 2) decreases, or 3) no change i n t r a n s f e r a b i l i t y . The tenure holder was asked t o go through the p i l e and c i r c l e e i t h e r 1), 2 ) , or 3) depending on t h e i r e x p e c t a t i o n of change over the next 20 y e a r s . 2. The tenure holder was asked to s o r t the cards i n t o two p i l e s : 1) one p i l e of cards where changes (1 or 2) have been i n d i c a t e d , and 2) one p i l e of cards where no change (3) has been i n d i c a t e d . 3. The tenure holder was asked to s o r t the cards from p i l e 1) i n t o three more p i l e s a ccording t o how the expected change would a f f e c t the p o t e n t i a l b e n e f i t s a tenure holder may d e r i v e from a tenure: 1) one p i l e that would i n c r e a s e the tenure holder's b e n e f i t s , 2) one p i l e that would decrease the tenure holder's b e n e f i t s , and 3) one p i l e that would have no e f f e c t on the p o t e n t i a l b e n e f i t s . 83 4. The tenure holder was then asked to order the cards: 1) i n the harmful p i l e from most harmful to l e a s t harmful; and 2) i n the b e n e f i c i a l p i l e from most b e n e f i c i a l to l e a s t b e n e f i c i a l . This provides o r d i n a l rankings of the expected p o l i c y changes. 5. F i n a l l y , the tenure holder was asked to assign each of the cards ratings of how harmful or b e n e f i c i a l the expected changes that they indicated would be. Ratings are once again assigned by l a y i n g the cards shown on a scale ranging from 10 to -10 where -10 i s most harmful, 10 i s most b e n e f i c i a l and 0 i s a point of reference where there i s no e f f e c t . Once again the tenure holders use a scale with equal appearing i n t e r v a l s and are asked to pay s p e c i f i c attention to p r o p o r t i o n a l i t i e s when assigning r a t i n g s . The end r e s u l t i s a r a t i o scale with c a r d i n a l r a t i n g s . The above procedure y i e l d s a composite security perception number which i s s i m i l a r to the i d e a l t h e o r e t i c a l methodology. Whereas, the i d e a l methodology would propose several possible changes for the tenure holder to respond to, i n the above procedures, the tenure holders are asked to specify an expected change or no change. Whereas the i d e a l methodology would ask tenure holders about expected costs, b e n e f i t s , and p r o b a b i l i t i e s of such a change, i n the above procedures, the tenure holder assigns the change a r a t i n g r e f l e c t i n g these components. Thus, the many p o s s i b l e combinations that could be obtained from combining Figures 3A and 3B are summarized by one number representing the mean expectation of the tenure holder. 4.4 THE SAMPLE The sample of tenure holders was the same as that described i n Section 3.4.2. Appendices A, B, and C, part 4 contain, r e s p e c t i v e l y , the interview questions used i n surveying the holders of Tree Farm Licences, Taxation Tree Farms and Crown Grants. 84 4.5 RESULTS Tables 7-9 show, re s p e c t i v e l y , the mean values and absolute value means of s e c u r i t y perception numbers for Crown Grant, Taxation Tree Farm, and Tree Farm Licence holders. C h a r a c t e r i s t i c spectra are ordered according to the absolute value means of t h e i r security perception numbers. Summary s t a t i s t i c s are presented i n Appendix E. In Section 4.2, i t was hypothesized that tenure holders may expect t h e i r tenures to change. The r e s u l t s presented i n Tables 7-9 support t h i s hypothesis. For every Crown Grant c h a r a c t e r i s t i c , between 9 and 16 Crown Grant holders believed there would be change. The average number of Crown Grant holders that expected changes i n a given c h a r a c t e r i s t i c to occur i s 12.25, or 61% of a l l Crown Grant holders. For every Taxation Tree Farm c h a r a c t e r i s t i c , between 3 and 22 tenure holders believed there would be change. The average number of tenure holders that expected changes to occur i n a given Taxation Tree Farm c h a r a c t e r i s t i c i s 7.75 or 35% of a l l holders. For every Tree Farm Licence c h a r a c t e r i s t i c , between 2 and 18 Tree Farm Licence holders believed there would be change. The average number of tenure holders that expect change i n a given Tree Farm Licence c h a r a c t e r i s t i c i s 9.6 or 51% of a l l holders. It was hypothesized i n Section 4.2 that changes i n tenures may influence the future b e n e f i t s that tenure holders receive. To support t h i s hypothesis, means of absolute values of s e c u r i t y perception numbers, UASPC'^ should be s i g n i f i c a n t l y greater than zero. Absolute values were 3. Where C i s the Cth c h a r a c t e r i s t i c C=l-4 for Crown Grants, C=l-12 for Taxation Tree Farms, and C=l-25 f o r Tree Farm Licences. 85 TABLE 7: SECURITY PERCEPTION NUMBER MEANS FOR CROWN GRANTS absolute C h a r a c t e r i s t i c # of # of # of no value Spectrum increases decreases changes means means 1. Property Taxes 14 4.67 + -3.78' 2. Environmental Protection Guidelines 13 1.95 + -1.95V 3. Log Export Controls 1.88 + 0.70 4. Forest Protection S t i p u l a t i o n s 11 1.30 + -0.40 + Mean ratings s i g n i f i c a n t l y greater than zero . at the 5% l e v e l of s i g n i f i c a n c e . Mean ra t i n g s s i g n i f i c a n t l y d i f f e r e n t from zero at the 5% l e v e l of s i g n i f i c a n c e . TABLE 8: SECURITY PERCEPTION NUMBER MEANS FOR TAXATION TREE FARMS absolute C h a r a c t e r i s t i c Spectrum # of increases # Of decreases # of no changes value means means 1. Property Taxes 12 10 0 6.86+ -1.45 2. Annual Allowable Cuts 10 2 10 2.67 + * 1.90 3. Penalties For Cutting Over the AAC 2 9 11 2.08 + 1.53 4. Log Export Controls 2 6 14 2.06 + 0.01 5. Environmental Protection Guidelines 12 2 8 1.80 + -0.64 6. Sustained Y i e l d Cut Controls O 1 10 12 1.49+ * 1.50 7. Penalties For Cutting Under the AAC 2 6 14 1.31 + 0.67 8. Non-Voluntary Planning Costs 7 3 . 12 1.03+ 0.38 9. Forest Protection S t i p u l a t i o n s 6 2 14 0.81 + -0.33 10. Harvesting U t i l i z a t i o n Requirements 9 1 12 0.75 + -0.52 11. ACE 2 Provisions 0 5 17 0.57 + 0.57 12. Reforestation Requirements 10 0 12 0.33 + . -0.19 87 TABLE 8 CONTINUED Mean ratings s i g n i f i c a n t l y greater than zero at the 5% l e v e l of s i g n i f i c a n c e . Mean ratings s i g n i f i c a n t l y d i f f e r e n t from zero at the 5% l e v e l of s i g n i f i c a n c e . Hypothetical changes proposing increases of r e s t r i c t i o n s along t h i s spectrum were not given as an option to the holder because holders were already thought to be at the spectrum extreme. The Allowable Cut E f f e c t (ACE) provisions allow holders to increase t h e i r current cuts i n return for investments i n fo r e s t management which can be shown to increase future y i e l d s . 88 TABLE 9: SECURITY PERCEPTION NUMBER MEANS FOR TREE FARM LICENCES C h a r a c t e r i s t i c Spectrum  absolute # of # of # of no value increases decreases changes means means 1. Stumpage Fees 16 5.17 + -4.41* 2. Annual Allowable Cuts 4.91 + 2.17 3. Management Expenditure Reimbursements 15 4.47 + -2.42 4. Accumulated Section 88 1 Credits 12 4.08"1" -2.76 5. Harvesting U t i l i z a t i o n Requirements 12 3.29 + -1.05 6. Environmental Protection Guidelines 15 3.29 + -2.41* 7. Road Bu i l d i n g Reimbursements 11 2.76 -1.76 8. Non-Voluntary Planning Costs 13 2.39 + -2.13' 9. Reforestation Requirements 10 2.37 + -0.89 10. Period Before Section 88 1 Reimbursements 2.18 T -0.55 11. Penalties For Over-cutting the AAC 1.89^ -0.37 12. Sustained Y i e l d Cut Controls 14 1.66+ 1.66* 89 TABLE 9 CONTINUED C h a r a c t e r i s t i c Spectrum  # of increases # of decreases # of no changes absolute value means means 13. Penalties For Under-cutting the AAC 11 1.63 + -0.11 14. Property-Taxes on Tree Farm Licence Crown Grants 15. Tenure Terms 7 2 4 4 8 13 1.37 + 1.32 + 0.05 -0.37 16. Forest Protection S t i p u l a t i o n s 17. Log Export Controls 10 1.21 + -1.00 1.05 0.11 18. Certainty of Replacement Opportunity 19. Tenure Transfers 15 16 1.03 + 0.29 0.74 -0.21 20. Adding Royalty Fees to Crown Grants 14 0.74 -0.74 21. Processing S t i p u l a t i o n s 22. Allotment Type 23. ACE 4 Provisions 13 17 17 0.47 -0.26 0.37 0.37 0.26 0.26 24. Schedule A Royalty Charges 12 0.21 -0.21 90 TABLE 9 CONTINUED C h a r a c t e r i s t i c Spectrum  # of increases # of decreases # of no changes absolute value means means 25. Adding Property Taxes to Tree Farm Licence Timber Licences 6 0 13 0 . 1 1 - 0 . 1 0 + Mean ratings s i g n i f i c a n t l y greater than zero at the 5% l e v e l of s i g n i f i c a n c e . * Mean ratings s i g n i f i c a n t l y d i f f e r e n t from zero at the 5% l e v e l of s i g n i f i c a n c e . 1. Section 88 of the B r i t i s h Columbia Forests Act allows approved expenditures on f o r e s t management to be subtracted from stumpage fees. 2. Hypothetical changes proposing increases of r e s t r i c t i o n s along t h i s spectrum were not given as an option to the holder because holders were already thought to be at the spectrum extreme. 3. Hypothetical changes proposing increases of r e s t r i c t i o n s along t h i s spectrum were not given as an option to the holder because holders were already thought to be at the spectrum extreme. 4. The Allowable Cut E f f e c t (ACE) provisions allow holders to increase t h e i r current cuts i n return f o r investments i n forest management which can be shown to increase future y i e l d s . 91 used because expected changes could be perceived as being b e n e f i c i a l or harmful. S t a t i s t i c a l tests were conducted on a l l absolute value means of security perception numbers: H 0 : u A S P C = O H l : u A S P C > 0 a = 5 % Plus signs i n Tables 7-9 i n d i c a t e c h a r a c t e r i s t i c s for which the n u l l hypothesis was rejected i n favor of the a l t e r n a t i v e hypothesis. For holders of Crown Grants and Taxation Tree Farms, Tables 7 and 8 show a l l c h a r a c t e r i s t i c s to have s i g n i f i c a n t absolute value means. For holders of Tree Farm Licences, 18 of 25 absolute value means i n Table 9 are s i g n i f i c a n t . It appears as though tenure holders expect changes to occur which w i l l a f f e c t t h e i r benefits for most tenure c h a r a c t e r i s t i c s f o r a l l tenure types. Tables 7-9 also show standard mean values of s e c u r i t y perception numbers. With p o s i t i v e and negative numbers included, i t now becomes possible to see i f there i s any consensus among holders of one tenure type, as to whether they f e e l secure or insecure about the future. S t a t i s t i c a l tests were done on a l l mean values of s e c u r i t y perception ratings, u S p C 4 to see i f they were s i g n i f i c a n t l y d i f f e r e n t from zero: H0 : uSPC =U' H-j^UgpQ^O, a=5%. Policy changes with a s t e r i s k s i n Tables 7-9 i n d i c a t e c h a r a c t e r i s t i c s with security perception means s i g n i f i c a n t l y d i f f e r e n t from zero. 4. Where C i s the Cth c h a r a c t e r i s t i c C=l-4 for Crown Grants, C=l-12 for Taxation Tree Farms, and C=l-25 for Tree Farm Licences. 92 During the period over which the interviews were being conducted, several issues emerged that were expected to a f f e c t tenure holder's perceived s e c u r i t y . For Crown Grants, the property taxation system was i n f l u x . Table 7 shows Crown Grant holders believed, on average, that t h e i r taxes would increase as a r e s u l t of the change. Furthermore, Crown Grant holders believed that environmental protection guidelines would become more r e s t r i c t i v e . The average of s t a t i s t i c a l l y s i g n i f i c a n t s e c u r i t y perception means was -2.87, i n d i c a t i n g a generally pessimistic outlook. Taxation Tree Farm l e g i s l a t i o n also changed. Table 8 shows Taxation Tree Farm holders perceived that the new l e g i s l a t i o n would decrease cut controls allowing t h e i r allowable annual cuts to increase. The average of s t a t i s t i c a l l y s i g n i f i c a n t s e c u r i t y perception means was 1.7, i n d i c a t i n g a generally o p t i m i s t i c outlook. The s e c u r i t y of Tree Farm Licences was expected to be af f e c t e d by a memorandum of understanding that had just been reached between Canada and the United States i n regards to the issue of countervailing d u t i e s . ^ This memorandum allows provinces to replace the t a r i f f with increased stumpage charges. Table 9 shows company's expectations of stumpage increases to be 5. In 1986, a group of American lumber producers, the " C o a l i t i o n for F a i r Lumber Imports", submitted a p e t i t i o n to the U.S. Department of Commerce claiming Canadian timber was subsidized (U.S. Department of Commerce 1986a). The preliminary determination of the International Trade Administration placed a 15% interim t a r i f f on softwood lumber pending f i n a l determination (U.S. Department of Commerce, 1986b). The p e t i t i o n was withdrawn when an agreement c a l l e d the "Memorandum of Understanding" was reached just before the f i n a l determination was due. (U.S. Trade Representative, 1986) The Memorandum allows the government of Canada to c o l l e c t a 15% t a r i f f on softwood lumber being exported to the U.S. and a l s o contains a clause which would allow the t a r i f f to be replaced by increased stumpage charges. 93 the largest negative mean se c u r i t y perception number. Furthermore, the Minister of Forests at that time, the Honorable Jack Kempf, was suggesting the elimination of Section 88 from the Forest Act. Fear of l o s i n g accumulated c r e d i t s and management reimbursements had the second and t h i r d highest negative mean se c u r i t y perception numbers for Tree Farm Licence holders. Another p o l i c y change i n the making was the add i t i o n of property taxes to Schedule A Timber Licence lands. Only six Tree Farm Licence holders indicated they thought property taxes would be added to Timber Licences and the mean se c u r i t y perception number for those six tenure holders was only -0.33, a value not s i g n i f i c a n t l y d i f f e r e n t from zero. It seems many Tree Farm Licence holders were uninformed of the change because they d i d not think i t too important i n a f f e c t i n g t h e i r b e n e f i t s . In a d d i t i o n to these a n t i c i p a t e d i n s e c u r i t i e s , Tree Farm Licence holders also expected environmental p r o t e c t i o n guidelines and non-voluntary planning s t i p u l a t i o n s to become more stringent, while road b u i l d i n g reimbursements and sustained y i e l d cut c o n t r o l s were expected to decrease. The average of the s t a t i s t i c a l l y s i g n i f i c a n t s ecurity perception means was -2.03, i n d i c a t i n g a generally p e s s i m i s t i c outlook. 4.6 LOOKING AHEAD Results presented i n t h i s chapter show that tenure holders expect changes i n t h e i r tenures which w i l l influence t h e i r future b e n e f i t s . In the next chapter, we w i l l i n v e s t i g a t e how these changes, and the i n i t i a l s p e c i f i c a t i o n of tenures discussed i n Chapter 3, influence investments i n s i l v i c u l t u r e . 94 5. THE EFFECT OF TENURES ON INVESTMENTS IN SILVICULTURE. This chapter w i l l i n v e s t i g a t e the hypothesis that the s p e c i f i c a t i o n s and security of tenures have an a f f e c t on incentives f o r tenure holders' willingness to invest i n s i l v i c u l t u r e . In i d e n t i f y i n g the necessary tenure conditions for investment incentives to e x i s t , several types of incentives for s i l v i c u l t u r a l expenditures w i l l be investigated. Hypotheses regarding the d i f f e r e n t types of expenditure incentives w i l l then be formulated and tested by means of a survey of s i l v i c u l t u r a l expenditure data from selected tenure types i n B r i t i s h Columbia. 5.1 THEORY AND HYPOTHESES When a firm enters i n t o a tenure agreement, i t i s beginning an undertaking with associated costs and be n e f i t s . As was pointed out i n Chapter 3, the s p e c i f i c a t i o n of tenure c h a r a c t e r i s t i c s serves to d i v i d e up the rents of forests between the government and f o r e s t r y firms. In t h i s way, tenure c h a r a c t e r i s t i c s p e c i f i c a t i o n s determine whether or not a company i s w i l l i n g to enter, or invest i n , a tenure. The most obvious benefits that holders of tenures receive i s the r i g h t to rents derived from harvesting standing timber. However, they may also capture bare land rents. Any forested lands which can y i e l d p o s i t i v e land expectation, or s o i l rent, values represent an asset whose benefits may be divided between the government and tenure holders, i f the tenure incentive framework allows, or provides for i t . 95 While i t may be d i f f i c u l t to recognize how tenures are d i v i d i n g up economic rents i n general, i t i s perhaps even more d i f f i c u l t to determine how land rents are being d i s t r i b u t e d . Indeed, i n B r i t i s h Columbia, to what extent current tenures allow such rents to be generated i s unknown. In order to maximize land rents, investments i n s i l v i c u l t u r e are usually necessary. 1 A tenure holder may make various kinds of expenditures i n s i l v i c u l t u r e . These expenditures may consist of one, or a combination, of the following three types. 1. Some expenditures may be reimbursed by the p r o v i n c i a l government. 2. Some expenditures, such as re f o r e s t a t i o n , may be made because of mandatory tenure s t i p u l a t i o n s and are not reimbursed. 3. F i n a l l y , some expenditures may be made which are not reimbursed and not due to mandatory s t i p u l a t i o n s . These are voluntary investments made i n order to reap benefits from future crops. These three types of expenditures, as defined, are each made for d i f f e r e n t reasons. By i d e n t i f y i n g why each of them i s made, incentives necessary to stimulate each type of expenditure become evident. Reimbursed expenditures are a means by which the government can invest i n fo r e s t management. These expenditures are usually made because governments do not beli e v e tenure holders w i l l invest enough of t h e i r own money. So long as reimbursement i s i n f u l l , tenure holders do not bear any of these expenditures. This study w i l l define reimbursed expenditures as 1. It i s po s s i b l e that f o r some forested s i t e s , maximum s o i l rent values may be obtained by doing nothing, thus allowing stands to regenerate and grow to maturity n a t u r a l l y . However, studies have shown that s i l v i c u l t u r a l expenditures can gre a t l y increase s o i l rents on many s i t e s . This i s one of the basic premises of forest management. 96 being expenditures for which tenure holders receive complete compensation. Thus, tenure holders are i n d i f f e r e n t as to whether these expenditures are made or not. Mandatory expenditures are made because tenure holders are required to make them or face the p o s s i b i l i t y of p e n a l t i e s . Thus, these expenditures are made to avoid p e n a l t i e s , not to enjoy the benefits from new timber crops.^ Voluntary investments are made because the tenure holder believes that future returns from enhanced timber crops w i l l be s u f f i c i e n t to provide adequate returns to the investments. A sp e c i a l type of voluntary investment i s an allowable cut e f f e c t investment. Tenure holders may invest i n s i l v i c u l t u r e i n order to demonstrate increased future y i e l d s , and, thereby, obtain increased allowable annual cuts. Any s i l v i c u l t u r a l p roject may depend on one, or a l l three, of these d i f f e r e n t types of expenditures. Indeed, any one expenditure may contain elements of a l l three of these incentive types. For example, i n B r i t i s h 2. Certain si t u a t i o n s may cause reimbursed incentives to be combined with mandatory and voluntary incentives which may prevent tenure holders from being i n d i f f e r e n t . These si t u a t i o n s are discussed l a t e r i n t h i s section. 3. The existence of mandatory expenditures, such as on r e f o r e s t a t i o n , has caused tenure holders to compare these expenses to the current benefits of avoiding pen a l t i e s , not to the future be n e f i t s derived from new crops. Thus, the structure of Canadian tenures, which necessitate these mandatory expenditures, does not permit tenure holders to count costs of r e f o r e s t a t i o n against b e n e f i t s of new crops, because future benefits allowed by tenures may not be s u f f i c i e n t to provide investment incentives. This has caused a common conception among Canadian foresters that a l l investments i n fo r e s t management should be evaluated for f e a s i b i l i t y and funded with r e c e i p t s from current crops. This concept contradicts the l o g i c of marginal analysis which does not consider sunk values. 97 Columbia, Section 88 of the Forest Act allows government approved management expenditures to be reimbursed through c r e d i t s against stumpage. Although tenure holders may be f u l l y reimbursed, there may be a long period before reimbursed are received. The in t e r e s t forgone on the c a p i t a l t i e d up i n stumpage c r e d i t s represents a non-reimbursed cost to the tenure holder. Another s i t u a t i o n where incomplete reimbursements may e x i s t i s i f payments are not s u f f i c i e n t to cover s i l v i c u l t u r a l a c t i v i t y c osts. Both the reimbursed and non-reimbursed portions of the expenditure may, or may not, allow the tenure holder b e n e f i t s from timber crops. If no crop benefits are expected by the tenure holder, then the tenure holder i s i n d i f f e r e n t as to whether he makes the reimbursed expenditure. However, i f the tenure holder perceives future b e n e f i t s may be captured, then the tenure holder w i l l make as many reimbursed expenditures as the government w i l l approve. The non-reimbursed portion of the costs w i l l create either mandatory expenditure incentives or voluntary investment incentives, depending on whether crop benefits are expected or not. If tenure holders spend t h e i r own money because they expect crop benefits, the non-reimbursed portions are voluntary investments. If tenure holders expect no crop b e n e f i t s from the non-reimbursed portion, then the money i s spent because they must do so to keep t h e i r tenures or avoid p e n a l t i e s . The incentives associated with each of these three kinds of expenditures have important p o l i c y implications. If a tenure i s designed with the i n c l u s i o n of reimbursed expenditures, then the government may want to ensure that the tenure system extracts f u l l economic rent from the resource to prevent tenure holders from gaining unearned future be n e f i t s . Furthermore, reimbursed expenditures 98 require the government to decide on the economic f e a s i b i l i t y and l e v e l of funding for investments. Therefore, authorization of these expenditures should be accompanied by c a r e f u l a n a l y s i s . Because the government has r e s p o n s i b i l i t y for determining investment types and l e v e l s , resource a l l o c a t i o n s may be d i f f e r e n t to those which would have r e s u l t e d from market forces. Also, close supervision of management a c t i v i t i e s w i l l be necessary because of the lack of tenure holder equity i n the p r o j e c t s . F i n a l l y , the government should attempt to determine the proportion of expenditures which i s a c t u a l l y reimbursed. Those portions which are not reimbursed f a l l i n t o one of the other two categories of expenditure incentives which have t h e i r own implications. If a tenure includes some mandatory expenditure i n c e n t i v e s , then the government should r e a l i z e that these costs are borne by tenure holders i n order to avoid pe n a l t i e s or prevent t h e i r tenure from being revoked. Such expenditures are not made to capture rents. Therefore, i t i s once again up to the government to decide on the economic f e a s i b i l i t y and l e v e l of funding for such projects by ensuring that t h e i r stated s t i p u l a t i o n s create the l e v e l and type of expenditures d e s i r e d . Closer supervision and p o l i c i n g w i l l l i k e l y be necessary for these types of expenditures than for reimbursed expenditures. Not only do tenure holders lack a d i r e c t i n t e r e s t i n the f r u i t s of t h e i r labor, but they are also not being reimbursed for th e i r costs. If voluntary investment incentives e x i s t i n a tenure system, then the government may be r e l i e v e d of several r e s p o n s i b i l i t i e s . Benefits derived from such investments d i c t a t e the f e a s i b i l i t y and o v e r a l l funding l e v e l of investment programs. Tenure holders have a d i r e c t i n t e r e s t i n the r e s u l t s 99 of t h e i r a c t i v i t i e s , so monitoring many operations may not be necessary. Instead of government determining the l e v e l of s i l v i c u l t u r a l funding and which a c t i v i t i e s to undertake, the Crown has a less a c t i v e r o l e i n monitoring a c t i v i t i e s for the purpose of c o n t r o l l i n g undesirable resource a l l o c a t i o n s and income d i s t r i b u t i o n s . It i s d i f f i c u l t to determine, i n p r a c t i c e , whether incentives e x i s t for voluntary investments. In order to stimulate voluntary investments, i t i s necessary to have some rent a v a i l a b l e for the tenure holders to capture. These rents may be benefits which are captured when enhanced timber crops are harvested, or benefits derived from the allowable cut e f f e c t . A tenure system which i s expected to extract f u l l rent from enhanced timber crops leaves no future benefits to cover the costs of investments. Likewise, i f f u l l rent i s being extracted from current timber crops, then increases i n allowable annual cut do not provide benefits to cover investment costs. Two provinces, Alberta and Ontario, have recognized the need to make rent a v a i l a b l e to tenure holders i n order to create investment i n c e n t i v e s . These provinces have tenures with provisions which d r a s t i c a l l y lower or eliminate stumpage charges for any ad d i t i o n a l future wood that r e s u l t s from int e n s i v e s i l v i c u l t u r e (Crossley, 1985 and S t e r l i n g Wood Group Inc., 1985). Another f a c t o r that a f f e c t s voluntary investments i s the tenure holder's perception of the security of h i s tenure. Even i f a tenure system does allow the holder a return to h i s s i l v i c u l t u r a l investment, he may believe that any rent created w i l l be captured by unanticipated changes i n tenure c h a r a c t e r i s t i c s . 100 The above discussion may be summarized i n the following general hypotheses: 1. A tenure system designed to extract f u l l economic rent from timber crops leaves no incentives for firms to make voluntary investments i n s i l v i c u l t u r e unless there are provisions which reduce the costs of tenure c h a r a c t e r i s t i c s . In order to stimulate voluntary investments, tenure holders must be allowed s u f f i c i e n t rent to compensate them f o r investment costs. Incentives to invest are al s o a f f e c t e d by whether a tenure holder perceives that crop rents w i l l be captured by future changes i n tenure c h a r a c t e r i s t i c s . 2. Reimbursed expenditures leave the tenure holder i n d i f f e r e n t as to whether or not to invest . However, i f reimbursement i s not complete, then expenditures become mandatory. With mandatory expenditure incentives the l e v e l of expenditures by tenure holders w i l l be determined by how much they believe they need to spend to avoid penalties or have t h e i r tenures revoked. 3. Reimbursed and mandatory expenditures r e s u l t i n resource a l l o c a t i o n s which are determined by the government, not tenure holding firms. Because government i s c o n t r o l l i n g investments, l e v e l of funding decisions may be very d i f f e r e n t from le v e l s r e s u l t i n g from voluntary investment i n c e n t i v e s . 5.2 METHODOLOGY AND SAMPLE The purpose of the methodology was to c o l l e c t data on the amount and type of s i l v i c u l t u r a l investments f o r selected tenure types, i n order to test the three general hypotheses developed on expenditure incentives. 101 Tenures for analysis were selected according to which ones would p o s s i b l y have some rent a v a i l a b l e on crops for tenure holders to capture through s i l v i c u l t u r a l investments. 4 Questionnaires were l e f t with a l l tenure holders interviewed (see Section 3.4.2) i n order to c o l l e c t information on the amount spent for various s i l v i c u l t u r a l a c t i v i t i e s . Data for a l l three types of expenditures described above were c o l l e c t e d . 5 Information on amount expended was c o l l e c t e d for the s i l v i c u l t u r a l a c t i v i t i e s of s i t e preparation, planting, brush c o n t r o l , spacing, and f e r t i l i z a t i o n . For holders of Tree Farm Licences, three separate questionnaires were l e f t f o r Schedule B lands, Schedule A Timber Licence Lands, and for Crown Grants within Tree Farm Licences. Appendix F contains a sample questionnaire which was completed for each kind of tenure. 4. Despite the f a c t that i n B r i t i s h Columbia, Tree Farm Licence holders receive no reductions i n costs on future crops, Rasmussen (1982) reported that for Thasis Company Ltd., approximately 30% of the funds invested i n timber management came from company funds. This implied that perhaps the tenure system was not capturing f u l l economic rent and that there was some incentive to invest i n f o r e s t management on Tree Farm Licences. Furthermore, no r o y a l t y or stumpage i s payable on Crown Grants within Tree Farm Licences so i t was expected that these lands may a t t r a c t some voluntary investments. Forest Licences were excluded from the sample because they are volume allotments. Because the licencee does not have area based r i g h t s , the licencee has no guarantee that he w i l l ever return to the area where he made the investment. Furthermore, the Ministry of Forests, (1984), reported that only two licencees had applied for increases i n allowable annual cuts i n response to allowable cut e f f e c t i n c e n t i v e s . Thus, i t appears as though there was i n s u f f i c i e n t a v a i l a b l e rent to stimulate voluntary investments on Forest Licences. 5. Expenditures made through various f e d e r a l l y supported projects to generate employment were not recorded because the amounts expended by the tenure holder and the government on these programs were not a v a i l a b l e by tenure and because these expenditures made up only a minor p o r t i o n of t o t a l expenditures during the sample period. 102 For holders of Crown Grants, 18 of 20 holders interviewed returned the questionnaires. For Taxation Tree Farm holders, 20 of 22 holders interviewed returned questionnaires. Of 19 Tree Farm Licence holders interviewed, 18 questionnaires were returned for Schedule B lands, 7 for Schedule A Timber Licence Lands, and 10 for Crown Grants within Tree Farm Li c e n c e s . 6 In comparing management expenditures between tenure types, several complications emerge. One problem i s the d i f f e r e n c e s that e x i s t i n natural c h a r a c t e r i s t i c s between d i f f e r e n t tenures. D i f f e r e n t tenures may have varying s i t e s and species which require d i f f e r e n t management pra c t i c e s i n order to maximize s o i l (land) rents. For example, the rent of one tenure may be maximized by r e l y i n g on natural regeneration and no further management a c t i v i t i e s while another may be maximized by planting followed by r e l a t i v e l y intensive management. Furthermore, the l o c a t i o n of tenures also a f f e c t s t h e i r land rent values by i n f l u e n c i n g the value of trees at maturity. A tenure with highly productive s i t e s may return less than a tenure made up of poor s i t e s i f the poor s i t e s are c l o s e r to a m i l l . Another problem l i e s i n the s t a t i c p i c t u r e which r e s u l t s from cross s e c t i o n a l a n a l y s i s . Comparing one tenure to another during a single year ignores the p o s s i b i l i t y that one tenure may have stands that have been rec e n t l y treated and, therefore, may not be i n need of management 6. Many Tree Farm Licences do not contain Schedule A Timber Licence lands or Crown Grants. Thus the sample of these types of holding was much smaller than for Schedule B lands. 103 expenditures, while another tenure may have stands that could benefit from treatments. And l a s t l y , d i f f e r e n t tenures are of varying sizes and have d i f f e r i n g proportions of productive land. Thus, comparing t o t a l management expenditures on a large tenure with mainly productive lands to those on a small tenure with a small percentage of productive land would y i e l d meaningless r e s u l t s . In order to solve these problems, several remedial steps were designed i n t o the methodology. F i r s t l y , data were c o l l e c t e d f or a f i v e year 7 ft period, 1981-1985. , By averaging expenditures over time, management expenditures analyzed c r o s s - s e c t i o n a l l y are more comparable. Secondly, data were c o l l e c t e d for each tenure and then combined for each tenure type. By aggregating expenditures for each tenure type, comparisons of o v e r a l l management expenditures reduce d i f f e r e n c e s i n s i t e , species, and distance from m i l l . And t h i r d l y , expenditures were divided by the number of 7. Two primary factors were considered i n choosing t h i s p e riod. F i r s t l y , data as current as possible were preferred i n order to include as many post recessionary years as possible, and because i t was thought that current perceptions would best explain recent investments. Data c o l l e c t i o n began i n January of 1987. At that time, many firms d i d not yet have data on 1986 compiled, so 1985 was the most recent year p o s s i b l e . A second consideration was the time required for tenure holders to complete the questionnaires. Pre-tests showed each questionnaire, which covered a f i v e year period, required approximately one hour to complete. It was thought that any longer time requirements would jeopardize response r a t e s . Although t h i s period does contain years when the forest industry was i n an economic recession, the r e s u l t s of cross-sectional comparisons are not a f f e c t e d because a l l tenure types were subject to the same recessionary e f f e c t s . 8. Two Tree Farm Licences and two Taxation Tree Farms were granted a f t e r 1981, so averages were taken for less than 5 years. 104 productive hectares i n the tenure i n order to adjust for differences i n siz e and productive a r e a s . 9 5.3 RESULTS Tables 10-14 summarize, r e s p e c t i v e l y , s i l v i c u l t u r a l investment expenditures for Crown Grants, Taxation Tree Farms, Tree Farm Licence Schedule B lands, Tree Farm Licence Schedule A Timber Licence lands, and Tree Farm Licence Crown Grants. T o t a l expenditures are further broken down to show portions which represent voluntary investments, mandatory expenditures, and reimbursed expenditures. 1^ A l l types of expenditures are further broken down by Coast and I n t e r i o r operations. Also, to get a better idea of what types of a c t i v i t i e s are being conducted, expenditures are shown for basic and in t e n s i v e management. For the purpose of t h i s study, basic management operations consist of s i t e preparation, planting, and brush c o n t r o l , while in t e n s i v e management operations consist of spacing and f e r t i l i z a t i o n . 1 1 A s t e r i s k s i n d i c a t e expenditures which are s i g n i f i c a n t l y greater than zero at the f i v e percent l e v e l of s i g n i f i c a n c e . 9. The questionnaire defined productive land as being any land which contributed to the tenure holder's allowable annual cut. Because Crown Grants (outside of Taxation Tree Farms and Tree Farm Licences) have no allowable annual cut, t o t a l hectares was used. 10. Because any one expenditure may have components of a l l three types of expenditure incentives, tenure holders found i t d i f f i c u l t to exactly c l a s s i f y some expenditures. For t h i s reason, factors which reduce the sample variance of small populations were not used for voluntary, reimbursed or mandatory expenditures i n order to present conservative r e s u l t s (see footnote 14, Chapter 3). 11. The d i s t i n c t i o n between basic and intensive management i s often vague and depends on whether each of these expenditures are made, re s p e c t i v e l y , before of a f t e r a stand i s considered "free to grow". Thus many of the expenditures l i s t e d under intensive management i n Tables 10-14 may be considered basic under "free to grow" c r i t e r i a . TABLE 10: AVERAGE ANNUAL SILVICULTURE EXPENDITURES FOR CROWN GRANTS R e g i o n a n d M a n a g e m e n t C l a s s T o t a l E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) V o l u n t a r y I n v e s t m e n t s $ / h e c t a r e ( s t . d e v . ) M a n d a t o r y E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) R e i m b u r s e d E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) B . C . T o t a l 18* a . b a s i c b . i n t e n s i v e 2 . 3 2 ( 9 . 0 5 ) 0 . 0 1 ( 0 . 0 3 ) 2 . 3 1 ( 9 . 0 5 ) 1 . 4 7 ( 5 . 4 4 ) 0 . 0 1 ( 0 . 0 3 ) 1 . 4 6 ( 5 . 4 5 ) O . O O ( 0 . 0 0 ) O . O O ( O . O O ) O . O O ( O . O O ) 0 . 8 5 ( 3 . 6 3 ) O . O O ( O . O O ) 0 . 8 5 ( 3 . 6 3 ) 1 . C o a s t a . b a s i c b . i n t e n s i v e 4 . 2 9 ( 1 2 . 8 2 ) 0 . 0 1 ( 0 . 0 4 ) 4 . 2 7 ( 1 2 . 8 2 ) 2 . 8 5 ( 7 . 6 9 ) 0 . 0 1 ( 0 . 0 4 ) 2 . 5 6 ( 7 . 6 9 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) O . O O ( O . O O ) 1 . 7 1 ( 5 . 1 3 ) 0 . 0 0 ( O . O O ) 1 . 7 1 ( 5 . 1 3 ) 2 . I n t e r i o r a . b a s i c b . i n t e n s i v e 0 . 3 6 ( 1 . 0 4 ) 0 . 0 1 ( 0 . 0 3 ) 0 . 3 5 ( 1 . 0 4 ) 0 . 3 6 ( 1 . 0 4 ) 0 . 0 1 ( 0 . 0 3 ) 0 . 3 5 ( 1 . 0 4 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( O . O O ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) * O n l y 5 o f t h e 18 r e s p o n d e n t s h a d m a d e a n y k i n d o f m a n a g e m e n t e x p e n d i t u r e . TABLE 1 1 : AVERAGE ANNUAL SILVICULTURE EXPENDITURES FOR TAXATION TREE FARMS R e g i o n a n d M a n a g e m e n t C l a s s T o t a l E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) V o l u n t a r y I n v e s t m e n t s $ / h e c t a r e ( s t . d e v . ) M a n d a t o r y E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v , )  Re i m b u r s e d E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) B . C . T o t a l 2 0 a . b a s i c b . i n t e n s i v e 2 1 . 8 3 ( 2 3 . 6 1 ) 1 1 . 6 6 * ( 1 2 . 8 1 ) 1 0 . 1 7 * ( 1 5 . 5 9 ) 1 6 . 8 8 ( 3 2 . 9 5 ) 8 . 1 7 * ( 1 8 . 3 7 ) 8 . 7 1 * ( 2 1 . 8 1 ) 2 . 6 0 ( 3 . 9 4 ) 2 . 2 8 * ( 3 . 3 3 ) 0 . 3 2 ( 1 . 3 6 ) 2 . 3 4 ( 7 . 0 7 ) 1 . 2 1 ( 3 . 6 6 ) 1 . 1 3 ( 3 . 4 1 ) 1 . C o a s t 16 a . b a s i c b . i n t e n s i v e 2 0 . 5 0 ( 2 2 . 2 0 ) 8 . 8 9 * ( 6 . 9 7 ) 1 1 . 6 2 * ( 1 7 . 2 0 ) 1 4 . 4 4 ( 2 9 . 9 1 ) 4 . 6 4 * ( 7 . 7 2 ) 9 . 8 0 ( 2 4 . 1 2 ) 3 . 1 4 ( 4 . 2 4 ) 2 . 7 4 * ( 3 . 5 7 ) 0 . 4 0 ( 1 . 5 2 ) 2 . 9 3 ( 7 . 8 4 ) 1 . 5 1 ( 4 . 0 5 ) 1 . 4 2 ( 3 . 7 8 ) 2 . I n t e r i o r a . b a s i c b . i n t e n s i v e 2 7 . 1 2 ( 3 2 . 3 1 ) 2 2 . 7 4 ( 2 6 . 4 5 ) 4 . 3 9 ( 5 . 9 0 ) 2 6 . 6 7 ( 4 7 . 3 6 ) 2 2 . 2 8 ( 3 8 . 8 3 ) 4 . 3 9 ( 8 . 5 8 ) 0 . 4 6 ( 0 . 9 1 ) 0 . 4 6 ( 0 . 9 1 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 1. S t a n d a r d d e v i a t i o n s i n c l u d e a r e d u c t i o n f a c t o r f o r s m a l l p o p u l a t i o n s a m p l i n g . * E x p e n d i t u r e s s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . O TABLE 12: AVERAGE ANNUAL SILVICULTURE EXPENDITURES FOR TREE FARM LICENCE SCHEDULE B LANDS R e g i o n a n d M a n a g e m e n t C l a s s T o t a l E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) 1 V o l u n t a r y I n v e s t m e n t s $ / h e c t a r e ( s t . d e v . ) M a n d a t o r y E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) Re i m b u r s e d E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) B . C . T o t a l 18 a . b a s i c b . i n t e n s i v e 5 . 4 0 ( 5 . 4 7 ) 2 . 4 3 * ( 1 . 2 0 ) 2 . 9 7 * ( 4 . 6 3 ) 0 . 4 7 ( 1 . 4 1 ) 0 . 1 1 ( 0 . 3 9 ) 0 . 3 6 ( 1 . 0 5 ) 0 . 1 5 ( 0 . 6 1 ) 0 . 1 5 ( 0 . 6 1 ) O . O O ( O . O O ) 4 . 7 8 ( 6 . 7 7 ) 2 . 1 7 *( 1 . 5 5 ) 2 . 6 1 *( 6 . 3 1 ) 1 . C o a s t a . b a s i c b . i n t e n s i v e 8 . 3 1 ( 8 . 8 7 ) 2 . 6 7 * ( 1 . 5 2 ) 5 . 6 4 * ( 7 . 5 1 ) 0 . 6 5 ( 1 . 9 4 ) 0 . 1 8 ( 0 . 5 4 ) 0 . 4 7 ( 1 . 4 0 ) 0 . 3 0 ( 0 . 8 6 ) 0 . 3 0 ( 0 . 8 6 ) 0 . 0 0 ( 0 . 0 0 ) 7 . 3 6 ( 8 . 8 8 ) 2 . 19 *( 1 . 2 4 ) 5 . 1 7 ( 8 . 3 7 ) 2 . I n t e r i o r a . b a s i c b . i n t e n s i v e 2 . 4 9 ( 1 . 5 3 ) • 2 . 1 9 * ( 1 . 4 3 ) 0 . 3 0 * ( 0 . 4 6 ) 0 . 2 8 ( 0 . 5 9 ) 0 . 0 4 ( 0 . 1 1 ) 0 . 2 5 ( 0 . 5 8 ) O . O O ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 2 . 2 1 ( 1 . 8 5 ) 2 . 16 *( 1 . 8 8 ) 0 . 0 5 ( 0 . 1 2 ) 1 . S t a n d a r d d e v i a t i o n s i n c l u d e a r e d u c t i o n f a c t o r f o r s m a l l p o p u l a t i o n s a m p l i n g . * E x p e n d i t u r e s s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . TABLE 13: AVERAGE ANNUAL SILVICULTURE EXPENDITURES FOR TREE FARM LICENCE SCHEDULE A TIMBER LICENCE LANDS R e g i o n a n d M a n a g e m e n t C l a s s T o t a l E x p e n d i t u r e s $ / h e c t a r e ( s t , d e v . ) V o l u n t a r y I n v e s t m e n t s $ / h e c t a r e ( s t . d e v . ) M a n d a t o r y E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) R e i m b u r s e d E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) B . C . T o t a l a . b a s i c b . i n t e n s i v e 5 . 3 5 * ( 3 . 7 1 ) 5 . 1 8 * ( 3 . 7 5 ) 0 . 1 6 ( 0 . 2 7 ) 0 . 1 2 ( 0 . 3 2 ) 0 . 1 2 ( 0 . 3 2 ) 0 . 0 0 ( 0 . 0 0 ) 5 . 2 3 ( 4 . 5 3 ) 5 . 0 6 * ( 4 . 5 7 ) 0 . 1 6 ( 0 . 3 3 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) O . O O ( o.oo) 1. C o a s t a . b a s i c b . i n t e n s i v e 5 . 4 8 ( 4 . 1 7 ) 5 . 3 3 * ( 4 . 2 0 ) 0 . 1 5 ( 0 . 3 0 ) 0 . 1 4 ( 0 . 3 4 ) 0 . 1 4 ( 0 . 3 4 ) 0 . 0 0 ( 0 . 0 0 ) 5 . 3 4 ( 4 . 9 5 ) 5 . 1 9 * ( 4 . 9 9 ) 0 . 1 5 ( O . 3 6 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 2 . I n t e r i o r a . b a s i c b . i n t e n s i v e 4 . 5 6 ( O . O O ) 4 . 3 2 ( 0 . 0 0 ) 0 . 2 4 ( 0 . 0 0 ) O . O O ( O . O O ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 4 . 5 6 ( O . O O ) 4 . 3 2 ( 0 . 0 0 ) 0 . 2 4 ( 0 . 0 0 ) O . O O ( O . O O ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 1 . S t a n d a r d d e v i a t i o n s i n c l u d e a r e d u c t i o n f a c t o r f o r s m a l l p o p u l a t i o n s a m p l i n g . * E x p e n d i t u r e s s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . TABLE 14: AVERAGE ANNUAL SILVICULTURE EXPENDITURES FOR TREE FARM LICENCE CROWN GRANT LANDS R e g i o n a n d M a n a g e m e n t C l a s s T o t a l E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) V o l u n t a r y I n v e s t m e n t s $ / h e c t a r e ( s t . d e v . ) M a n d a t o r y E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) R e i m b u r s e d E x p e n d i t u r e s $ / h e c t a r e ( s t . d e v . ) B . C . T o t a l 10 a . b a s i c b . i n t e n s i v e 9 . 4 1 ( 1 1 . 7 8 ) 4 . 8 7 * ( 7 . 4 7 ) 4 . 5 4 * ( 5 . 7 3 ) 6 . 0 9 ( 1 5 . 3 4 ) 3 . 4 2 ( 1 0 . 2 8 ) 2 . 6 7 ( 5 . 4 5 ) 1 . 5 1 ( 1 . 7 8 ) 1 . 4 1 * ( 1 . 6 7 ) 0 . 0 9 ( 0 . 2 3 ) 1 . 8 1 ( 5 . 6 8 ) 0 . 0 4 ( 0 . 0 9 ) 1 . 7 7 ( 5 . 6 1 ) 1 . C o a s t a . b a s i c b . i n t e n s i v e 1 3 . 4 5 ( 1 4 . 1 7 ) 6 . 9 6 * ( 9 . 3 2 ) 6 . 4 8 * ( 6 . 9 1 ) 8 . 7 0 ( 1 8 . 0 7 ) 4 . 8 9 ( 1 2 . 2 6 ) 3 . 8 2 ( 6 . 2 8 ) 2 . 1 5 ( 1 . 7 7 ) 2 . 0 2 * ( 1 . 6 6 ) 0 . 1 3 ( 0 . 2 6 ) 2 . 5 9 ( 6 . 7 9 ) 0 . 0 6 ( 0 . 1 0 ) 2 . 5 3 ( 6 . 7 0 ) 2 . I n t e r i o r a . b a s i c b . i n t e n s i v e 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) O . O O ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) O . O O ( O . O O ) 0 . 0 0 ( 0 . 0 0 ) 0 . 0 0 ( 0 . 0 0 ) 1. S t a n d a r d d e v i a t i o n s i n c l u d e a r e d u c t i o n f a c t o r f o r s m a l l p o p u l a t i o n s a m p l i n g . * E x p e n d i t u r e s s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . 110 The data contained i n Tables 10-14 are used i n the remainder of t h i s chapter to test each of the three general hypotheses stated i n Section 5.1. 5.3.1 Hypothesis 1: Voluntary Investment Incentives Before tenure holders were interviewed, i t was expected that the two tenures most c l o s e l y resembling p r i v a t e land would provide incentives to invest and therefore have s i g n i f i c a n t voluntary investments. With less rent being absorbed by the attenuation of tenure c h a r a c t e r i s t i c s , there would be a better chance of these tenure holders having incentives to make investments to capture rents. Furthermore, the sec u r i t y usually associated with p r i v a t e land created expectations that Taxation Tree Farms and Crown Grants would have s i g n i f i c a n t investments. Table 11 shows Taxation Tree Farms to be the only tenure type with s i g n i f i c a n t voluntary investments at the f i v e percent l e v e l . Of the 18 Crown Grant holders (outside Taxation Tree Farms) who returned questionnaires, only 5 had made any expenditures. These re s u l t s may be explained with findings of Chapters 3 and 4. Chapter 3 showed taxes to be by f a r the most c o s t l y tenure c h a r a c t e r i s t i c to holders of Crown Grants and Taxation Tree Farms. However, data c o l l e c t e d with the interviews (see Appendices A-C) on the amount of taxes paid by tenure holders revealed that taxes per hectare are approximately four times as high f o r Crown Grant holders as for holders of Taxation Tree Farms. In Chapter 3, holders of Crown Grants rated the elimi n a t i o n of property taxes +5.75 while holders of Taxation Tree Farms rated the change +7.47. Assuming 5.75 to represent a d o l l a r value four times greater than 7.47, we can see that each r a t i n g point for a Crown I l l Grant holder i s approximately f i v e times as c o s t l y as a point for holders of Taxation Tree Farms. Thus, although Crown Grants have fewer attenuations than Taxation Tree Farms, the high costs of property taxes for Crown Grants outweigh a l l of the less c o s t l y attenuations of c h a r a c t e r i s t i c s of Taxation Tree Farms. A d d i t i o n a l l y , r e s u l t s presented i n Chapter 4 on the perceived s e c u r i t y of Taxation Tree Farm holders and perceived i n s e c u r i t y of Crown Grant holders, further explain why there were no voluntary investments on Crown Grants. Thus, i t i s not s u r p r i s i n g that i t was found during the interviews that p r a c t i c a l l y nobody i s holding Crown Grants for the sole purpose of d e r i v i n g benefits from producing timber. Almost a l l Crown Grant holders had a l t e r n a t i v e motives for holding t h e i r lands, the most popular being a n t i c i p a t e d increased land values from future increases i n the demand for r e c r e a t i o n or housing development. Although a l l lands within a Tree Farm Licence are managed under a s i n g l e management plan, d i f f e r i n g attenuations of c h a r a c t e r i s t i c s of various holdings within the Licence caused a p r i o r i expectations to d i f f e r . If any lands within a Tree Farm Licence had incentives for voluntary investments, i t was thought that Crown Grants would because these holdings have no stumpage or r o y a l t i e s payable on current or future crops. Table 14 shows voluntary investments to not be s i g n i f i c a n t l y greater than zero at the f i v e percent l e v e l of s i g n i f i c a n c e . Voluntary investments only become s i g n i f i c a n t at the twelve percent l e v e l . There are several p o s s i b l e reasons for t h i s r e s u l t . The sample s i z e may have been too small to allow s i g n i f i c a n c e at the f i v e percent l e v e l . It may be that with a larger sample, the variance would have decreased and caused the investments to be 112 s i g n i f i c a n t at the f i v e percent l e v e l . Also, there could be other factors which would show even a larger sample to have i n s i g n i f i c a n t investments. Despite the absence of stumpages, the many other c o s t l y attenuations of Tree Farm Licence c h a r a c t e r i s t i c s i d e n t i f i e d i n Chapter 3 and the i n s e c u r i t y perceived by Tree Farm Licence holders i n Chapter 4, may have prevented investments. Because Schedule A and B holders do not receive concessions on wood volumes which r e s u l t from s i l v i c u l t u r a l investments, and because Chapter 4 showed that Tree Farm Licence holders perceive an insecure future, i t was expected that no voluntary investments would take place. For both Schedule B and Schedule A lands, Tables 12 and 13 show low l e v e l s of voluntary investment which are i n s i g n i f i c a n t at the f i v e percent l e v e l . 5.3.2 Hypothesis 2; Mandatory and Reimbursed Expenditure Incentives A unique s i t u a t i o n among Tree Farm Licence holders provided the opportunity to test the hypothesis that mandatory expenditures are made to avoid p e n a l t i e s . The M i n i s t r y of Forests (1984) reported a problem with Section 88 of the Forest A c t . 1 2 During the recession of the early 1980s, low stumpage p r i c e s had caused many Tree Farm Licence holders to accumulate large amounts of non-reimbursed c r e d i t s . The i n t e r e s t foregone i n tied-up funds had added mandatory expenditures to reimbursements. Though the recession ended, f o r the most part, i n 1985, i t was thought that several tenure holders might s t i l l have accumulated Section 88 c r e d i t s . Therefore, when the tenure holders were interviewed, they were 12. Section 88 of the B r i t i s h Columbia Forest Act allows Tree Farm Licence holders to obtain c r e d i t s against stumpage for government approved management expenditures. 113 asked the amount of t h e i r current accumulated Section 88 c r e d i t s . Out of the 19 tenure holders interviewed i n e a r l y 1987, 10 Tree Farm Licencees s t i l l had accumulated c r e d i t s which averaged $725,300 per l i c e n c e . Of the 10 Tree Farm Licences that had accumulated c r e d i t s , 8 were i n the I n t e r i o r . 1 3 If mandatory expenditures are only made to avoid p e n a l t i e s , i t was thought that less would be spent on s i l v i c u l t u r e when mandatory expenditures were added to reimbursements i f the low l e v e l s of operational c o n t r o l that had been developed and used for reimbursed expenditure incentives were now being used to attempt to control mandatory expenditure incent i v e s . To investigate whether these c r e d i t costs were reducing expenditures, t e s t s were done to see i f there was a s i g n i f i c a n t p o s i t i v e d i f f e r e n c e i n the mean of t o t a l expenditures between Coast, u<-., and I n t e r i o r , U j , Schedule B lands. That i s : H 0:u c-u I=0 H 1 : U C - U i>0 a=5%. The n u l l hypothesis was rejected i n favor of the a l t e r n a t i v e hypothesis. By further studying Table 12 we see that basic s i l v i c u l t u r e expenditures were sim i l a r between the Coast and I n t e r i o r . However, the I n t e r i o r had p r a c t i c a l l y no in t e n s i v e expenditures while on the Coast, int e n s i v e expenditures were much higher than basic. It appears that the emergence of mandatory components of non-reimbursed expenditures created incentives for tenure holders to avoid making expenditures. Thus, i t seems 13. I n t e r i o r producers remained on minimum stumpage longer than Coast operators so were slower to eliminate accumulated c r e d i t s . 114 that only basic s i l v i c u l t u r e , required to avoid penalties, was undertaken. However, i t may a l s o be that i n t e n s i v e expenditures were not incurred i n the I n t e r i o r because of le s s productive s i t e s . Less productive s i t e s may prevent the Crown from approving expenditures on investments with low returns. Support for t h i s hypothesis comes from Table 11 which shows that intensive expenditures make up only 16% of the t o t a l expenditures on Taxation Tree Farms i n the I n t e r i o r which are not influenced by Section 88. Thus, i t i s probable that both the emergence of mandatory costs, and, lower s i t e s , led to the absence of i n t e n s i v e expenditures on Schedule B lands i n the I n t e r i o r . The above analysis should not be interpreted to suggest that mandatory expenditures w i l l always be less than reimbursed expenditures. The government has the power to c o n t r o l both types of spending. Mandatory r e f o r e s t a t i o n requirements may be s t i p u l a t e d and enforced so that more of these expenditures are required than reimbursed expenditures which may be l i m i t e d by government budgets. For example, there i s no s i g n i f i c a n t d i f f e r e n c e at the f i v e percent l e v e l between reimbursed expenditures for Schedule B lands and mandatory expenditures for Schedule A lands (Tables 12 and 13). The above an a l y s i s merely points out that mandatory costs w i l l be determined by the l e v e l of operational c o n t r o l of a tenure. In the case of Sec. 88 c r e d i t buildups, i t appears that there were not operational controls i n place to force holders to increase th e i r c r e d i t buildups and incur mandatory expenditures. However, i n the case of Schedule A lands, s t i p u l a t i o n s are c l e a r that the tenure holder must reforest without reimbursement or pay higher stumpage r a t e s . 1 1 5 5 . 3 . 3 Hypothesis 3 : Voluntary Investments and the Level of Funding Because Taxation. Tree Farms had s i g n i f i c a n t voluntary investments (see Section 5 . 3 . 1 ) , the l e v e l of expenditures made on these lands r e f l e c t s incentives which are very d i f f e r e n t from those a f f e c t i n g expenditures on tenures where reimbursed and mandatory expenditures are undertaken. It was, therefore, expected that expenditures on these lands would be s i g n i f i c a n t l y d i f f e r e n t from expenditures on lands where the government determined funding l e v e l s . To test t h i s hypothesis, s t a t i s t i c a l t e s t s were done to see i f the d i f f e r e n c e between mean annual expenditures on Taxation Tree Farms and Schedule B Tree Farm Licence l a n d s 1 4 , u T T F and Ug B, was s i g n i f i c a n t l y d i f f e r e n t from zero. That i s : H Q : Uijipp—Ugg^O H^: Uij^p—Uggy^O a = 5 % . The n u l l hypothesis was e a s i l y rejected i n favor of the a l t e r n a t i v e hypothesis and showed Taxation Tree Farms to have greater expenditures. Results show that voluntary investment incentives associated with Taxation Tree Farms have been a l l o c a t i n g more resources to s i l v i c u l t u r e investments than government determined mandatory and reimbursed expenditures. The implications of t h i s w i l l be discussed i n the f i n a l chapter. 1 4 . Because there was no s t a t i s t i c a l l y s i g n i f i c a n t d i f f e r e n c e i n s i l v i c u l t u r e expenditures on Schedule B and Schedule A Timber Licence lands, tests are only presented for Schedule B lands. However, Schedule A Timber Licence lands have a lower variance than Schedule B lands causing t e s t r e s u l t s f or Schedule B lands to hold for Schedule A lands too. 116 6. SUMMARY AND CONCLUSIONS 6.1 SUMMARY This study has investigated the r o l e that forest tenures play as instruments of pu b l i c p o l i c y . In Canada, where 94% of the fo r e s t land i s p u b l i c l y owned, there e x i s t s a complex array of forest tenure arrangements, each with d i f f e r i n g sets of c h a r a c t e r i s t i c s which influence the economic behavior of t h e i r holders. Despite the importance of fo r e s t tenures as p o l i c y instruments, there has been s u r p r i s i n g l y l i t t l e research done on the economic implications of a l t e r n a t i v e tenure arrangements. This study has analyzed the e f f e c t s of some B r i t i s h Columbia tenures on the d i s t r i b u t i o n of economic rents, the a l l o c a t i o n of resources, and investments i n s i l v i c u l t u r e . A number of c h a r a c t e r i s t i c s were i d e n t i f i e d which are common to a l l tenures, i n c l u d i n g : comprehensiveness, duration, t r a n s f e r a b i l i t y , r i g h t of tenure holder to economic be n e f i t s , exclusiveness, s e c u r i t y of tenure, use r e s t r i c t i o n s , allotment type (area or volume), siz e s p e c i f i c a t i o n , operational s t i p u l a t i o n s , and operational c o n t r o l . The problem which governments face, as landlords, i n d e f i n i n g an i d e a l , or optimum, tenure was discussed. One approach to t h i s problem involves examining each tenure c h a r a c t e r i s t i c separately and choosing the optimal p u b l i c - p r i v a t e mix for each c h a r a c t e r i s t i c given the s o c i a l considerations that accompany various s p e c i f i c a t i o n s . The i n d i v i d u a l l y s p e c i f i e d c h a r a c t e r i s t i c s are then combined to create a whole tenure. While 117 such a solution i s conceptually possi b l e , the purpose of the a n a l y s i s was not to create an optimum tenure, but to i l l u s t r a t e the complexity of p o l i c y decisions with regards to tenures. D i f f i c u l t i e s of cr e a t i n g an optimum tenure include a l l the problems inherent i n d e f i n i n g s o c i a l u t i l i t y functions which influence the optimal s p e c i f i c a t i o n of c h a r a c t e r i s t i c s , and the fa c t that the various tenure c h a r a c t e r i s t i c s are not independent. That i s , changing one c h a r a c t e r i s t i c modifies the optimum s p e c i f i c a t i o n of other c h a r a c t e r i s t i c s . Two series of interdependencies are i s o l a t e d and hypothesized to have important economic im p l i c a t i o n s . These hypotheses are: 1. The r i g h t of tenure holders to economic ben e f i t s may be influenced by every tenure c h a r a c t e r i s t i c . 2. Tenure holders expect t h e i r tenures to change i n ways which influence the future benefits that they receive. These two hypotheses were posed to address the question of how tenures d i s t r i b u t e economic rents and a l l o c a t e resources. If the attenuation and i n s e c u r i t y of tenure c h a r a c t e r i s t i c s reduce benefits of tenure holders, then the rent a v a i l a b l e from tenure holders to be c o l l e c t e d by governments i s lowered. In t h i s way, the s p e c i f i c a t i o n of tenure c h a r a c t e r i s t i c s , which influence benefits of tenure holders, d i s t r i b u t e s forest rents between the tenure holder and the Crown. The Crown may c o l l e c t rent i n the form of stumpages or taxes, however other attenuations of tenure c h a r a c t e r i s t i c s , such as u t i l i z a t i o n requirements, also reduce benefits of tenure holders yet do not r e s u l t i n d i r e c t payments to the Crown. Instead, the Crown c o l l e c t s " s o c i a l rents" 118 which allow government greater control over resource a l l o c a t i o n s and income d i s t r i b u t i o n s . The amount of economic rent that the Crown c o l l e c t s i n stumpage and taxes i s f a i r l y easy to determine. However, how much rent are the other attenuations of tenure c h a r a c t e r i s t i c s , such as u t i l i z a t i o n requirements, taking? In order to t e s t the two hypotheses, interviews were conducted with holders of Tree Farm Licences, Taxation Tree Farms outside of Tree Farm Licences and Crown Granted Timber Land outside of Tree Farm Licences. Tenure holders were interviewed according to procedures designed to obtain empirical data on: 1. The e f f e c t of current attenuations of tenure c h a r a c t e r i s t i c s on the p o t e n t i a l benefits of tenure holders. 2. The p o t e n t i a l for a d d i t i o n a l costs to tenure holders i f tenures are further attenuated. 3. The o v e r a l l r e l a t i v e importance of tenure c h a r a c t e r i s t i c s i n a f f e c t i n g the benefits of tenure holders. 4. The mix of p u b l i c - p r i v a t e c o n t r o l , i n terms of costs of c h a r a c t e r i s t i c attenuations, that e x i s t s for each tenure c h a r a c t e r i s t i c . 5. The s e c u r i t y tenure holders perceive i n the s t a b i l i t y of t h e i r tenure framework. 6. The e f f e c t of changes i n the s p e c i f i c a t i o n of tenure c h a r a c t e r i s t i c s on benefits of tenure holders. 7. How tenure holders expect recent p o l i c y changes w i l l a f f e c t t h e i r b e n e f i t s . Results show that most attenuations of c h a r a c t e r i s t i c s c u r r e n t l y i n force decrease b e n e f i t s of tenure holders. For Crown Grants, taxes, environmental p r o t e c t i o n guidelines, and forest p r o t e c t i o n s t i p u l a t i o n s were a l l shown to reduce benefits of tenure holders at the f i v e percent 119 l e v e l of s i g n i f i c a n c e . Only log export r e s t r i c t i o n s were i n s i g n i f i c a n t , p r i m a r i l y because of the many Crown Grant holdings i n the Interior which have no economically exportable logs. For Taxation Tree Farms, 6 of 11 attenuations of tenure c h a r a c t e r i s t i c s are reducing benefits at the f i v e percent l e v e l of s i g n i f i c a n c e . S p e c i f i c a l l y , property taxes, log export c o n t r o l s , sustained y i e l d cut co n t r o l s , and mandatory planning costs were shown to be reducing benefits of tenure holders. Tree Farm Licence holders i n d i c a t e d that 17 of 21 attenuations were s i g n i f i c a n t l y reducing b e n e f i t s . Uncertainty of tenure replacement opportunity rated highest as that c h a r a c t e r i s t i c which was most c o s t l y to tenure holders. Other c o s t l y c h a r a c t e r i s t i c s included: stumpage fees; incomplete road b u i l d i n g and management reimbursements; less than perpetual tenure terms; sustained y i e l d cut c o n t r o l s ; harvesting u t i l i z a t i o n requirements; and environmental p r o t e c t i o n g u i d e l i n e s . Increasing attenuations of tenure c h a r a c t e r i s t i c a l s o , for the most part, would r e s u l t i n reduced benefits to the tenure holders. A l l attenuations of tenure c h a r a c t e r i s t i c s proposed i n interviews to holders of Crown Grants and Taxation Tree Farms were shown to reduce benefits of tenure holders at the f i v e percent l e v e l of s i g n i f i c a n c e . Increasing taxes was shown to be the most c o s t l y attenuation f o r both kinds of tenures. For Taxation Tree Farms, eliminating log exports and allowable cut e f f e c t provisions were a l s o seen to cause p o t e n t i a l l y large reductions i n tenure holders' b e n e f i t s . For Tree Farm Licence holders, 21 of 23 increased c h a r a c t e r i s t i c attenuations s i g n i f i c a n t l y reduced b e n e f i t s . Among the most c o s t l y increases i n attenuations were, reducing allowable annual cuts, increasing stumpage fees, increasing l i c e n c e replacement uncertainty, 120 eli m i n a t i n g management expenditure reimbursements, and changing from area to volume based tenures. In measuring the o v e r a l l r e l a t i v e importance of tenure c h a r a c t e r i s t i c s i n a f f e c t i n g benefits of tenure holders, a l l c h a r a c t e r i s t i c s for a l l tenure types were shown to be s i g n i f i c a n t at the f i v e percent l e v e l . Thus the f i r s t hypothesis was accepted. The p u b l i c - p r i v a t e mix of each c h a r a c t e r i s t i c was then s p e c i f i e d i n terms of the cost of the attenuation to the tenure holder. That i s , the government's c o n t r o l over a given c h a r a c t e r i s t i c was s p e c i f i e d according to the proportion of a l l possible attenuation costs that tenure holders were a c t u a l l y bearing. In measuring the security of holders' tenures, 61% of Crown Grant holders expected that a given tenure c h a r a c t e r i s t i c would change. For Taxation Tree Farm holders, 35% of a l l tenure holders a n t i c i p a t e d change for a given c h a r a c t e r i s t i c while 51% of Tree Farm Licence holders a n t i c i p a t e d change. Thus, the r e s u l t s show that tenure holders generally expected t h e i r tenures to change. Tenure holders also anticipated that future changes i n t h e i r tenures would a f f e c t the p o t e n t i a l benefits they would receive. For holders of Crown Grants and Taxation Tree Farms, a l l c h a r a c t e r i s t i c s were expected to change so that the benefits of tenure holders would be s i g n i f i c a n t l y a f f e c t e d at the f i v e percent l e v e l . For Tree Farm Licences, 18 of 25 c h a r a c t e r i s t i c changes were expected by tenure holders to a f f e c t t h e i r b e n e f i t s . Thus, the r e s u l t s supported the second hypothesis. 121 Results further showed that f or several a n t i c i p a t e d p o l i c y changes, tenure holders are i n general agreement as to how the expected p o l i c i e s w i l l a f f e c t t h e i r future b e n e f i t s . Crown Grant holders believed that property taxes and stringency of environmental protection guidelines would increase to reduce t h e i r b e n e f i t s . Holders of Taxation Tree Farms believed that t h e i r allowable annual cuts would increase and that sustained y i e l d cut controls would decrease, both of which they perceived as being b e n e f i c i a l changes. Tree Farm Licence holders expected many changes which would reduce t h e i r b e n e f i t s , i n c l u d i n g : increased stumpage fees, c a n c e l l a t i o n or decreases of accumulated Section 88 c r e d i t s , decreases of management expenditure reimbursements through Section 88, increased environmental protection guidelines, increased mandatory planning s t i p u l a t i o n s , and decreased road b u i l d i n g reimbursements. The only b e n e f i c i a l change they a n t i c i p a t e d was decreased sustained y i e l d cut c o n t r o l s . On average, Crown Grant holders be l i e v e future changes w i l l harm them while Taxation Tree Farm holders be l i e v e the future w i l l bring b e n e f i c i a l changes. Tree Farm Licence holders perceive that future changes, on average, w i l l reduce the benefits they receive from t h e i r tenures. Thus, Taxation Tree Farms were found to be secure tenures while Crown Grants and Tree Farm Licences were found to be insecure. The i n s e c u r i t y of Tree Farm Licence holders seemed to be caused p r i m a r i l y by an a n t i c i p a t i o n of several p o l i c y changes that would reduce t h e i r b e n e f i t s because of a recent c o u n t e r v a i l i n g duty case with American lumber producers. Taxation Tree Farm holders generally thought that taxation p o l i c y changes i n s t i t u t e d on January 1, 1987 would increase the benefits they could derive from t h e i r tenures, while Crown Grant holders 122 outside of Taxation Tree Farms ant i c i p a t e d the changes would reduce t h e i r b e n e f i t s . The study then considered the e f f e c t s of tenure type on investments i n s i l v i c u l t u r e . Three general hypotheses were developed: 1. A tenure system designed to extract f u l l economic rent from timber crops leaves no incentives f or firms to make voluntary investments i n s i l v i c u l t u r e unless there are p r o v i s i o n s which reduce costs of tenure c h a r a c t e r i s t i c s . In order to stimulate voluntary investments, tenure holders must be allowed s u f f i c i e n t rent to compensate them for investment costs. Incentives to invest are a l s o a f f e c t e d by whether a tenure holder perceives that crop rents w i l l be captured by future changes i n tenure c h a r a c t e r i s t i c s . 2. Reimbursed expenditures leave the tenure holder i n d i f f e r e n t as to whether or not to inv e s t . However, i f reimbursement i s not complete, then expenditures become mandatory. With mandatory expenditure incentives the l e v e l of expenditures by tenure holders w i l l be determined by how much they b e l i e v e they need to spend to avoid pen a l t i e s , or have t h e i r tenure revoked. 3 . Reimbursed and mandatory expenditures r e s u l t i n resource a l l o c a t i o n s which are determined by government, not tenure holding firms. Because government i s c o n t r o l l i n g investments, l e v e l of funding decisions may be very d i f f e r e n t from l e v e l s r e s u l t i n g from voluntary investment incent i v e s . In order to investigate these hypotheses, questionnaires were d i s t r i b u t e d to tenure holders which gathered information on management expenditures. In i n v e s t i g a t i n g the f i r s t hypothesis, only holders of Taxation Tree Farms were found to make s i g n i f i c a n t voluntary investments at the f i v e percent l e v e l . It appears that a l l lands within Tree Farm Licences, and Crown Granted Timber Lands do not allow the tenure holder enough secure rent to induce voluntary investments. Hypothesis 2 was investigated by seeing i f the emergence of mandatory cost incentives, i n the form of foregone i n t e r e s t on accumulated Section 88 123 c r e d i t s for Tree Farm Licences i n the I n t e r i o r , caused these tenure holders to avoid management expenditures. Results show s i g n i f i c a n t differences at the f i v e percent l e v e l i n Coast vs. I n t e r i o r expenditures on Schedule B lands. Coast tenure holders performed both basic and intensive s i l v i c u l t u r e , while I n t e r i o r tenure holders l i m i t e d t h e i r operations to basic s i l v i c u l t u r e ; i . e . at the l e v e l required to avoid penalties and keep t h e i r tenure. Another probable reason f o r fewer i n t e r i o r expenditures i s that higher returns from s i l v i c u l t u r a l spending on better s i t e s on the Coast l i k e l y caused the government to approve more expenditures for the Coast. The f i n a l hypothesis was in v e s t i g a t e d by comparing investments on tenures with voluntary investment incentives (Taxation Tree Farms) with reimbursed and mandatory expenditure tenures (Schedule B and Schedule A Timber Licence Lands within Tree Farm Licences). Expenditures on Taxation Tree Farms were found to be s i g n i f i c a n t l y d i f f e r e n t from expenditures on Schedule B and Schedule A Timber Licence lands at the f i v e percent l e v e l . Furthermore, expenditures on Taxation Tree Farms were found to be greater than on Schedule B and Schedule A Timber Licence lands. Thus, there appears to be more spent on tenures with voluntary investment incentives than on tenures with reimbursed or mandatory expenditures. 6.2 IMPLICATIONS OF THE STUDY The r e s u l t s described above provide i n s i g h t s into many aspects of tenure p o l i c y with important and f a r reaching implications. This study has emphasized the complexity of the problem decision makers face i n formulating tenure p o l i c y . There are varying s o c i a l and 124 p r i v a t e costs associated with the p u b l i c - p r i v a t e mix of each c h a r a c t e r i s t i c of a tenure holder's framework. Many of these costs are not numerically q u a n t i f i a b l e because they depend on weights given to d i f f e r e n t c o n f l i c t i n g components of a s o c i a l welfare function. Furthermore, sp e c i f y i n g the pub l i c - p r i v a t e mix for any one c h a r a c t e r i s t i c i s i n t e r r e l a t e d with other c h a r a c t e r i s t i c s p e c i f i c a t i o n s . Despite the complexities inherent i n tenure p o l i c y , d e c i s i o n makers must choose some course of action regarding the structure of the tenure system. As one consideration i n these decisions, t h i s study has concentrated on developing some idea of how c o s t l y p u b l i c attenuations of tenure c h a r a c t e r i s t i c s are i n terms of the p o t e n t i a l benefits a holder may receive from a tenure. In analyzing the e f f e c t s of p u b l i c attenuations of tenure c h a r a c t e r i s t i c s , every c h a r a c t e r i s t i c was found to be important i n a f f e c t i n g the benefits of tenure holders. Because tenure c h a r a c t e r i s t i c s a f f e c t benefits of tenure holders, tenures determine how the rents of fo r e s t s are d i s t r i b u t e d between the Crown and tenure holders. Tenures a l s o a f f e c t resource a l l o c a t i o n s by attenuating c h a r a c t e r i s t i c s which channel rents i n t o meeting governmental objectives such as c o n t r o l l i n g e x t e r n a l i t i e s and regional development. In deciding the degree to which c h a r a c t e r i s t i c s should be attenuated, governments should consider the costs of t h e i r a c t i o n s . Results of t h i s study could a i d d e c i s i o n makers by showing them the costs of some attenuations to tenure holders. With a better idea of the costs to tenure holders, decisions makers can then compare these costs to the benefits they be l i e v e society i s rec e i v i n g as a r e s u l t of the attenuations. Furthermore, 125 with a better knowledge of the r e l a t i v e costs of c h a r a c t e r i s t i c attenuations, p o l i c y makers w i l l be able to better a l l o c a t e these costs among tenure c h a r a c t e r i s t i c s i n an attempt to maximize expected s o c i a l returns. The costs of attenuations of tenure c h a r a c t e r i s t i c s should a l s o be considered i n deciding how much rent can be c o l l e c t e d by stumpage fees and taxes. Because a l l other c h a r a c t e r i s t i c s absorb some of the rents a v a i l a b l e , they determine how much rent i s l e f t for stumpage and taxes to c o l l e c t . The existence of many rent absorbing c h a r a c t e r i s t i c s d r i v e s home a point argued by lawyers for Canadian softwood lumber producers i n the recent c o u n t e r v a i l i n g duty case (see footnote 5, Chapter 4). That i s , stumpages paid under d i f f e r e n t tenure systems are not d i r e c t l y comparable. There are too many di f f e r e n c e s i n other rent absorbing c h a r a c t e r i s t i c s , among other things, for such comparisons to have much meaning. Tenure c h a r a c t e r i s t i c attenuations also have an important e f f e c t i n determining the investment behavior of tenure holders i n s i l v i c u l t u r e . In order to make investments, tenure holders must be able to capture enough benefits to o f f s e t the opportunity costs of forgoing the use of t h e i r investment d o l l a r s . If a tenure system i s designed to capture the f u l l rent of trees, then there w i l l be no benefits a v a i l a b l e to cover the costs of inves t i n g , so no voluntary investment w i l l take place. Therefore, investment incentives could be provided by reducing the amount of forest rent captured. 126 The future rents a v a i l a b l e from s i l v i c u l t u r a l investments are also a f f e c t e d by the security with which tenure holders perceive t h e i r tenures. If tenure holders believe that tenure c h a r a c t e r i s t i c s w i l l change so that any a v a i l a b l e future rents are reduced, then investments w i l l decrease. The a v a i l a b i l i t y of rents also has important implications f o r those tenures that do not provide incentives for tenure holders to inves t . Without incentives to invest, the existence of reimbursed and mandatory expenditures has become an i n t e g r a l part of Canadian forest management. If there i s no future rent a v a i l a b l e to be captured, expenditures which are completely reimbursed leave tenure holders i n d i f f e r e n t as to whether to expend or not. However, t h i s state of i n d i f f e r e n c e i s usually non-existent due to several factors which may provide a d d i t i o n a l incentives or dis i n c e n t i v e s to make expenditures. Incentives which stimulate reimbursed expenditures may be provided by even small amounts of uncaptured rent a v a i l a b l e on future crops. While future rents necessary to compensate for investment opportunity costs are f a i r l y large, future rents required to sway an i n d i f f e r e n t tenure holder towards reimbursed expenditures may be quite small. If a tenure holder i s being completely reimbursed f o r costs, then only a small amount of rent need be av a i l a b l e on future crops to provide incentives for the tenure holder to make as many expenditures as the government w i l l approve. However, i t i s not l i k e l y that a l l reimbursements w i l l be exactly equal to the costs borne by the tenure holder. Tenure holders may ei t h e r be reimbursed too much, or too l i t t l e . If reimbursements are too high, then tenure holders w i l l have incentives to make as many expenditures as the government w i l l approve. However, i f reimbursements are incomplete, then 127 tenure holders w i l l minimize these costs, unless future rents are expected to compensate tenure holders for non-reimbursed costs. Non-reimbursed costs may al s o be required of tenure holders even i f there are no future rents a v a i l a b l e . These mandatory expenditures are borne by tenure holders i n order to avoid penalties and r e t a i n tenures. They are costs which w i l l be minimized, to the extent that governments allow them to be, because tenure holders receive no ad d i t i o n a l benefits by increasing them. There i s al s o another aspect of reimbursed and mandatory expenditures which has important i m p l i c a t i o n s . When expenditures i n s i l v i c u l t u r e are not due to voluntary investments, they are con t r o l l e d by the government. Governments c o n t r o l reimbursed expenditures by approving them or not, and by determining the amount of rent that they w i l l c o l l e c t on future crops. Mandatory expenditures are c o n t r o l l e d by governments by determining what a c t i v i t i e s w i l l be required, to what extent the s t i p u l a t i o n w i l l be po l i c e d , and the pena l t i e s f o r non-compliance. The absence of market forces i n these kinds of expenditure decisions can lead to resource a l l o c a t i o n s which are d i f f e r e n t from those which would have been d i c t a t e d by market forces. Governments should c a r e f u l l y consider whether the a l l o c a t i o n s which r e s u l t from these kinds of decisions are promoting s o c i a l welfare. If not, then the government should e i t h e r a l t e r incentives so that more, or l e s s , reimbursed or mandatory expenditures are made, or, they should seek to replace these expenditures with incentives which allow tenure holders to make investments. 128 With voluntary investments, incentives are determined by expected benefits derived from harvesting trees. Benefits may be derived by tenure holders from harvesting trees planted and/or improved by t h e i r s i l v i c u l t u r a l a c t i v i t i e s , or from immediate increases i n allowable annual cuts due to the allowable cut e f f e c t . Because benefits derived from the forest are d i c t a t i n g the funding l e v e l and type of s i l v i c u l t u r a l a c t i v i t y , the government need not be as act i v e i n managing these lands. Results of t h i s study suggest that voluntary investment incentives have resulted i n more funds being a l l o c a t e d to s i l v i c u l t u r e than through reimbursed and mandatory expenditures. That i s , tenures s p e c i f i e d so that th e i r holders have a v a i l a b l e and secure economic rents are creating incentives f o r more s i l v i c u l t u r a l investments than tenures r e l y i n g on reimbursed and mandatory expenditures determined by government. This r e s u l t i s yet another consideration which governments should be aware of i n attempting to specify an optimum tenure. Whether tenures which provide voluntary investment incentives are desi r a b l e depends on whether the benefits associated with creating these incentives exceed the costs of the governments loss of control associated with loosening c h a r a c t e r i s t i c attenuations. 1 The general implications of t h i s study may be extended to analyze the s p e c i f i c p o l i c y changes that have recently occurred i n B r i t i s h Columbia. 1. This issue w i l l be further discussed i n Section 6.3.4. 129 6.3 AN ANALYSIS OF "NEW DIRECTIONS FOR FOREST POLICY IN BRITISH COLUMBIA" During the f i n a l stages of t h i s study, the B r i t i s h Columbia M i n i s t r y of Forests and Lands (1987b-d) announced "New Directions f or Forest P o l i c y i n B r i t i s h Columbia". The r e s u l t s submitted i n t h i s thesis provide i n s i g h t i n t o several issues addressed i n the p o l i c y review and suggest how e f f e c t i v e , or i n e f f e c t i v e , these changes may be i n meeting p r o v i n c i a l o b j e c t i v e s . The next sections w i l l analyze major components of the "New Di r e c t i o n s " i n the l i g h t of the findings of t h i s study, and i n some cases p r e d i c t r e s u l t s of these new p o l i c i e s . 6.3.1 The E f f e c t of the New B r i t i s h Columbia P o l i c y on Rents of Tenure  Holders A major impetus for change i n B r i t i s h Columbia f o r e s t p o l i c y was the recent countervailing duty case (see footnote 5, Chapter 4). The case was s e t t l e d with a memorandum of understanding which states: "The Government of Canada may reduce or eliminate the export charge on the basis of increased stumpage or other charges by provinces on softwood lumber producers." (United States Trade Representative, 1986). P o l i c y changes i n response to t h i s p r ovision have begun across Canada because of the reduction i n federal income tax payable by tenure holders that would r e s u l t from the substitution of increased stumpages for the export t a r i f f . Whereas stumpage costs are deductible as operating expenses for c a l c u l a t i o n of fe d e r a l income taxes, the t a r i f f was not. A major part of the p o l i c y change i s the increased stumpage costs tenure holders w i l l have to pay. Despite the fa c t that a rebate system w i l l reimburse tenure holders for higher stumpages u n t i l log export t a r i f f s are 130 eliminated, the government should have considered whether i t needed to reduce tenure costs i n some other areas. If the stumpage system was c o l l e c t i n g f u l l rent before the change, as Canadian producers claim, then any increases i n stumpage should have been accompanied by decreases i n other c h a r a c t e r i s t i c attenuations, or the size of the softwood lumber industry i s l i k e l y to shrink as c a p i t a l leaves for better returns elsewhere. However, despite the fac t that stumpages are increasing, the new B r i t i s h Columbia f o r e s t p o l i c y (1987c) i s al s o attenuating several other tenure c h a r a c t e r i s t i c s : 1. "Industry w i l l assume f u l l costs for basic s i l v i c u l t u r e i n c l u d i n g seed c o l l e c t i o n , seedling production, s i t e preparation and other cost measures required to replace forests following harvesting on long term tenures." 2. "...holders w i l l be responsible for the costs of bu i l d i n g and maintaining forest harvesting roads and bridges for th e i r harvesting and s i l v i c u l t u r e operations." 3. " . . . ( r o y a l t y ) rates w i l l average approximately 5.40/m3 compared to an average of approximately 1.35/m3 charged i n 1986." 4. " P o l i c i e s w i l l be established to permit sale by the Province of the portions of annual undercuts greater than 50%. Five year undercuts of greater than 5% w i l l be removed from the li c e n c e . " 5. "A program w i l l be established to recover 5% of allowable annual cut upon sale, transfer, or assignment of lic e n c e i n t e r e s t s . . . " 6. "Changes to the Forest Act w i l l make pre-harvest s i l v i c u l t u r a l planning mandatory, enforce performance and require audit." 7. " . . . i n i t i a t i v e s w i l l be undertaken to recover 5% of the e x i s t i n g a l l o c a t i o n from a l l replaceable licences with allowable annual Cuts." 131 8. "...the fee i n l i e u of manufacturing w i l l be 30% of the p r i c e d i f f e r e n c e between domestic and export p r i c e s on surplus logs; 15% of the differe n c e between domestic and export p r i c e s on logs that are exported under economic c r i t e r i a . An o v e r a l l minimum rate of $1.00 per cubic meter on a l l species exported i s now i n e f f e c t . " A l l of these changes w i l l apply to holders of Tree Farm Licences and Forest Licences. These two tenure types accounted for 80% of the volume committed i n 1985/86 ( B r i t i s h Columbia M i n i s t r y of Forests and Lands, 1986). Thus, by analyzing the ef f e c t s of the changes on these two tenure types, the e f f e c t of the new p o l i c i e s on the wood products industry as a whole may be approximated. When data were c o l l e c t e d for th i s study, many of these new p o l i c i e s for Tree Farm Licences were posed as hypothetical attenuations (Chapter 3, Table 6). The announcement of these new p o l i c i e s a f t e r data had already been c o l l e c t e d creates a unique opportunity to see how they w i l l a f f e c t tenure holders' rents. With the introduction of the new stumpage system and elimination of management and road b u i l d i n g reimbursements, the M i n i s t r y of Forests and Lands (1987c) expects that stumpage revenues to the Crown w i l l increase from $138 m i l l i o n to $547 m i l l i o n from non-competitive stumpage payments. 2 Non-competitive payments are almost e x c l u s i v e l y made up of stumpage from Tree Farm Licences and Forest Licences. Thus Tree Farm Licence and Forest 2. The increase i n payments from $138 to $547 m i l l i o n includes considerations that tenure holders w i l l no longer be reimbursed f o r basic s i l v i c u l t u r e through stumpage c r e d i t s (for more information on t h i s see footnote 4 of t h i s chapter). Furthermore, the increased payments w i l l be derived from increased stumpages designed to o f f s e t the c o u n t e r v a i l i n g duty. If the duty i s not removed, the government w i l l reimburse the tenure holders for the increased stumpage, but tenure holders w i l l nonetheless pay an amount close to the $547 m i l l i o n i n expected stumpage. 132 Licence holders w i l l experience a cost increase of approximately $409 m i l l i o n . In a d d i t i o n to increased stumpages, r o y a l t y rates for Schedule A Timber Licence Lands w i l l be increased by 4 times from an average i n 1986 of $1.35/m3 to $5.40/m3. The Mi n i s t r y of Forests and Lands (1987e) estimates that r o y a l t i e s add up to approximately $8.5 m i l l i o n . Thus with new p o l i c i e s , r o y a l t y costs to industry w i l l increase approximately $25.5 m i l l i o n . Sustained y i e l d r e s t r i c t i o n s w i l l a l s o be increased with the new forest p o l i c y . A s t r i c t "use i t or lose i t " p o l i c y w i l l be enforced where any unused allowable annual cut beyond the allowed leeway w i l l be deleted. The Forest Act allows allowable annual cut deviations of - 50% i n any one year and — 10% over a f i v e year period. The new p o l i c y w i l l now allow a devi a t i o n of only — 5% over a 5 year period. In Chapter 3 of t h i s study i t i s reported that Tree Farm Licence holders rated "doubling penalties f o r cut t i n g under your allowable annual cut" a mean value of -2.21 i 1.48 at the 5% l e v e l of s i g n i f i c a n c e . It i s probable that costs to tenure holders from the new allowable annual cut s t i p u l a t i o n s w i l l at least double costs of tenure holders given the previous leniency with which these s t i p u l a t i o n s were administered (see for example The Vancouver Sun, 1986). A p o r t i o n of tenure holders' allowable annual cut w i l l also be l o s t i f i t i s tra n s f e r r e d . Thus, t r a n s f e r a b i l i t y of tenures has been further r e s t r i c t e d . In Chapter 3 i t was reported that tenure holders gave the elimi n a t i o n of tenure t r a n s f e r s an attenuation r a t i n g of -4.00. Assuming that the increased r e s t r i c t i o n s eliminate h a l f of the t r a n s f e r a b i l i t y of 133 tenures, an attenuation r a t i n g of -2.00 - .37 at the 5% l e v e l of s i g n i f i c a n c e can be assumed. 3 With increased r e s p o n s i b i l i t i e s f or management, planning costs w i l l a l s o increase. In Chapter 3, tenure holders gave doubling planning costs an attenuation r a t i n g of -1.68 — 1.3 at the 5% l e v e l of s i g n i f i c a n c e . 4 Applying data from Chapter 3 to current p o l i c i e s provides i n s i g h t i n t o how much rent i s being captured by the new c h a r a c t e r i s t i c attenuations. From the analysis above, the increased stumpages, management, and road b u i l d i n g r e s p o n s i b i l i t y to holders of Tree Farm Licences and Forest Licences, were valued at $409 m i l l i o n . Also, r o y a l t i e s were expected to increase by $25.5 m i l l i o n . In a d d i t i o n to these changes, increases i n sustained y i e l d requirements, t r a n s f e r a b i l i t y r e s t r i c t i o n s , and planning requirements w i l l occur. Assuming that these p o l i c y attenuations are independent i n t h e i r e f f e c t s on benefits of tenure h o l d e r s , 5 and that responses of these changes by Tree Farm Licence holders are i n d i c a t i v e of Forest Licence holder costs, e f f e c t s of the t o t a l increase i n costs to industry may be estimated at -5.89 —3.15 at the 5% l e v e l of s i g n i f i c a n c e . 3. A r a t i n g of -2.00 assumes a l i n e a r i n t e r p o l a t i o n by taking one half of the -4.00 attenuation r a t i n g . 4. Although management costs are included i n the stumpage a p p r a i s a l , industry w i l l s t i l l bear t h e i r f u l l cost. Only r e l a t i v e values, between stands, w i l l be affected by the i n c l u s i o n of these costs. The o v e r a l l amount that the M i n i s t r y c o l l e c t s from industry i s determined by a target l e v e l which i s not reduced by the i n c l u s i o n of s i l v i c u l t u r a l costs. 5. If the attenuation ratings X and Y are independent, then var(X+Y)=varX+varY because the covariance of (X,Y)=0 (see for example Wonnacott and Wonnacott, 1977). 134 In Chapter 3 doubling stumpage was rated as -6.93 - 1.38 at the 5% l e v e l of s i g n i f i c a n c e . The M i n i s t r y of Forests and Lands (1987e) c o l l e c t e d $164.7 m i l l i o n i n stumpage i n 1986/87 not including small business sales. Assuming the -6.93 to equal an increase of $164.7 m i l l i o n , the increased costs due to the combined attenuation ratings of -5.89 would be $140 m i l l i o n . 6 Thus the cost increases of the new p o l i c y changes to industry i s estimated to be $409 m i l l i o n f o r increased stumpages, management and road b u i l d i n g requirements, $25.5 m i l l i o n for increased r o y a l t i e s , and $140 m i l l i o n for o ther a t t e n u a t i o n s of t enure c h a r a c t e r i s t i c s es t imated by t h i s study, for a t o t a l cost increase of approximately $575 m i l l i o n . These costs represent a conservative estimate. Allowable annual cut reductions of 5% for Tree Farm Licence holders are not included. Furthermore, log export fee increases are not included i n the above a n a l y s i s . If i t indeed i s true that the M i n i s t r y of Forests and Lands was not c o l l e c t i n g f u l l economic rent from the resource before the changes, i t would seem appropriate to increase t h e i r share gradually to see what a f f e c t these increased costs would have on the fo r e s t industry. Increased costs to industry of $575 m i l l i o n represents an increase of approximately 3.5 times what stumpages were i n 1986/87. Given t h i s major increase i n costs i t may be expected that i n order to survive, holders of Tree Farm Licences w i l l have to cut costs. That i s , the f o r e s t industry may be expected to minimize the e f f e c t s of these 6. A value of $140 m i l l i o n assumes a l i n e a r extrapolation of the combined attenuation r a t i n g s . 135 further r e s t r i c t i o n s by as much as t h e i r tenures w i l l allow. One place t h i s w i l l probably occur, i s i n investments i n s i l v i c u l t u r e . 6.3.2 The Effect of the New B r i t i s h Columbia P o l i c y on Tree Farm Licence  Holders' S i l v i c u l t u r e Investments 6.3.2.1 Basic S i l v i c u l t u r e In Chapter 5 i t was hypothesized that as reimbursed costs become mandatory, tenure holders have incentives to minimize these costs within the constraints of t h e i r tenure. The new f o r e s t p o l i c y has turned reimbursed Section 88<expenditures into mandatory ones. Results reported i n Chapter 5 also showed no s i g n i f i c a n t voluntary investments on Schedule B or Schedule A Timber Licence Lands. With further cost attenuations to current and future crops, there are even les s incentives now than there were before. With no incentives to invest and no reimbursements, basic s i l v i c u l t u r e expenditures from the new p o l i c y are a mandatory cost to be minimized. Therefore, the l e v e l of funding spent on basic s i l v i c u l t u r e w i l l depend almost e n t i r e l y on how much money the government spends i n p o l i c i n g requirements and how much tenure holders are penalized for non-compliance. 6.3.2.2 Intensive s i l v i c u l t u r e The new B r i t i s h Columbia Forest P o l i c y (1987c) states: "Industry w i l l be encouraged to carry out more in t e n s i v e s i l v i c u l t u r e on long term tenures. Any increase i n allowable annual cut a r i s i n g out of these expenditures w i l l be retained within i t s long term tenures." This i s , i n f a c t , a restatement of a p o l i c y which already e x i s t s and has f a i l e d . Sec. 28(g) of the Forest Act allows allowable annual cut calc u l a t i o n s to take i n t o account any increases i n p r o d u c t i v i t y due to 136 intensive s i l v i c u l t u r e . However, i n Chapter 5, findings showed that int e n s i v e voluntary investments per productive hectare of Crown land i n Tree Farm Licences were not s i g n i f i c a n t l y d i f f e r e n t from zero. V i r t u a l l y a l l intensive investments (for the most part, spacing) were reimbursed through Sec. 88. The reason these "allowable cut e f f e c t " p o l i c i e s have f a i l e d i s that the costs of i n v e s t i n g i n s i l v i c u l t u r e have been greater than benefits of increased allowable annual cuts. Benefits of increased allowable annual cuts exist only i f the tenure system leaves some uncaptured rent i n the harvesting of current and future crops. If stumpages and other attenuations of c h a r a c t e r i s t i c s capture a l l of the economic rent, then there i s nothing to cover the tenure holders' costs of investing. Evidence suggests that there was i n s u f f i c i e n t rent a v a i l a b l e to cover investment costs even before the p o l i c y changes. With the new p o l i c y changes, there w i l l be even l e s s , i f any, rent a v a i l a b l e on crops and thus even fewer allowable cut e f f e c t investments. 6.3.3 Other E f f e c t s of the P o l i c y There are two other areas of the new forest p o l i c y that may be analyzed with i n s i g h t s provided by t h i s study. The new B r i t i s h Columbia p o l i c y (1987c) states: 137 1. "Industry has strongly supported the further expansion of Tree Farm Licences within the province. This mechanism has proven to be a cost e f f e c t i v e form of tenure for government and the security provides an important and valued benefit to the lic e n c e holder. P o l i c i e s w i l l be established to support an expansion of Tree Farm Licences from the current l e v e l of 29% of the p r o v i n c i a l allowable annual cut to as much as 67%. Individual a p p l i c a t i o n s for tenure w i l l be judged i n terms of company performance and public i n t e r e s t . In recognition of the value being t r a n s f e r r e d to industry through t h i s form of tenure, p o l i c i e s w i l l be introduced by which up to 10% of the allowable annual cut w i l l be made a v a i l a b l e for competitive sales upon conversion of tenure to a Tree Farm Licence status." 2. "A major consideration i n a p p l i c a t i o n s for new Tree Farm Licences w i l l be evidence and commitment to enhanced secondary and t e r t i a r y processing a c t i v i t y . " The f i r s t point suggests that holders of Forest Licences w i l l want to trade i n up to 10% of t h e i r allowable annual cut for the opportunity to convert t h e i r Forest Licences i n t o Tree Farm Licences. While there was general support by industry f o r the expansion of Tree Farm Licences before the introduction of the new p o l i c y , i t seems u n l i k e l y that tenure holders w i l l now want to convert t h e i r Forest Licences. The M i n i s t r y states that industry values the security of Tree Farm Licences. In f a c t , t h i s study has shown that Tree Farm Licences are viewed by the industry as insecure tenures, as the new p o l i c i e s themselves confirm. The value industry placed on Tree Farm Licences must have been due to something other than s e c u r i t y . Perhaps, i t i s that Tree Farm Licences are area-based and thus allow tenure holders the c e r t a i n t y of knowing where t h e i r operations w i l l be the following year. However, volume based Forest Licences have evolved "chart areas' to a l l e v i a t e the problems of planning around volume commitments. I t i s more l i k e l y that industry favored Tree 7. "Chart Areas" are regions set up through negotiations between Forest Licence holders and the government to provide tenure holders with a defined area from which t h e i r allowable annual cut w i l l come. 138 Farm Licences because these tenures allowed tenure holders a greater chance of capturing a portion of rents a v a i l a b l e on future crops with reimbursed expenditures.® Whatever the reason(s) f o r industry favoring Tree Farm Licences over Forest Licences, given the recent tenure changes, i t i s now unknown whether these reasons w i l l s t i l l apply. With c h a r a c t e r i s t i c costs increased and reimbursed expenditures eliminated, i t may well be that tenure holders w i l l be hesitant to convert Forest Licences into Tree Farm Licences even without being charged up to 10% of t h e i r allowable annual cut. The second change i n p o l i c y i s related to the f i r s t , i n that i t suggests that there w i l l be tenure holders wanting to apply f o r new Tree Farm Licences. I f , indeed, there are holders of Forest Licences that are w i l l i n g to apply for new Tree Farm Licences, i t i s poss i b l e that applicants w i l l not be w i l l i n g to promote secondary manufacturing to the degree that they have i n the past. Commitment and enhancement of processing a c t i v i t i e s were major considerations i n granting Tree Farm Licences before the new p o l i c y . In fa c t , i t may be that these considerations are responsible for the overcapacity of lumber producing plants believed by many to exi s t i n B r i t i s h Columbia. 9 With the absence of a bidding system for Tree Farm Licences, i t could be that negotiations for tenures were channeling f o r e s t 8. Since Tree Farm Licences having d e f i n i t i v e areas, r i g h t s to future b e n e f i t s are easier to capture than with a volume based Forest Licence. It i s l i k e l y that t h i s i s why i t i s generally thought that more reimbursed expenditures are made on Tree Farm Licences than on Forest Licences. 9. See, for example, Woodland Resources Services Ltd., 1987. 139 rents into overcapacity i n order to create or preserve jobs. If t h i s , i n f a c t , was the case, we can now expect applicants to be less w i l l i n g to create overcapacity with less rent a v a i l a b l e . 6.3.4 Recommendations on Areas for Further Study In l i g h t of the current changes to B r i t i s h Columbia Forest Policy there are several areas which should be monitored and studied further. F i r s t , because of the magnitude of the increases i n costs that industry i s bearing as a r e s u l t of the recent p o l i c y changes, investments should be monitored because the new p o l i c i e s may g r e a t l y a f f e c t the amount of c a p i t a l that stays i n the forest industry. With less rent a v a i l a b l e and increased i n s e c u r i t y , i t i s probable that i n v e s t i n g to replace depreciated c a p i t a l w i l l decrease, and even p o s s i b l e that some tenure holders w i l l declare bankruptcy and walk away from the a l t e r e d agreements. Second, expenditures i n basic and intensive s i l v i c u l t u r e should be monitored to see how the new p o l i c i e s a f f e c t the amounts expended. For basic s i l v i c u l t u r e , transaction costs required to p o l i c e tenure holders should be monitored to see whether any increased benefits of the new basic s i l v i c u l t u r e p o l i c y are worth the increased p o l i c i n g costs. Tenures i n B r i t i s h Columbia have evolved i n response to changing s o c i a l values. A more recent concern i n t h i s evolution has been the lack of investments i n s i l v i c u l t u r e . 1<") A l o g i c a l next step f o r B r i t i s h Columbia forest tenures would be to a l t e r e x i s t i n g tenures so that they are not 10. See, for example Goldfarb Consultants, 1987. 140 merely designed to capture the rents of standing trees, but of forest land p r o d u c t i v i t y as w e l l . To date, changes to B r i t i s h Columbia's major tenures which have t r i e d to stimulate s i l v i c u l t u r a l expenditures have u t i l i z e d incentives associated with reimbursed or mandatory expenditures. Major tenures i n B r i t i s h Columbia, either by design or inadvertence, have not provided tenure holders with s u f f i c i e n t incentives to induce investments i n s i l v i c u l t u r e . Further study i s needed to investigate the p o s s i b i l i t y of voluntary investment incentives for B r i t i s h Columbia forest tenures. One obvious way that t h i s could be accomplished i s by p r i v a t i z i n g f o rest land. Haley (1985) has suggested t h i s as an a l t e r n a t i v e which would promote economic e f f i c i e n c y . However, many p o l i c y analysts i n Canada have dismissed t h i s option as p o l i t i c a l l y unfeasible. Because there are many cases of market f a i l u r e with p r i v a t e property r i g h t s i n f o r e s t r y , as discussed i n Chapter 1, a tenure designed to correct these f a i l u r e s , yet allow market forces to influence investment decisions, seems to be needed i n B r i t i s h Columbia. Boulter (1984) and O l l i v o t t o (1987) have made suggestions as to ways i n which market forces may be l e t i n t o the tenure system, but further study i n t h i s area i s necessary. The basic problem involves i d e n t i f y i n g ways for tenure holders to gain equity i n future crops by leaving them some future rent to capture through management investments. There are several unexplored p o s s i b i l i t i e s . The tenure systems of Alberta and Ontario, which eliminate or su b s t a n t i a l l y reduce stumpage on addit i o n a l wood produced from intensive management warrant further study. Furthermore, a type of tenure that has 141 existed for decades i n a g r i c u l t u r e , farm tenancy, could be applicable to f o r e s t r y . In farm tenancy arrangements, the owner of the land i s f i n a n c i a l l y responsible f o r permanent improvements to the land and any investments made to increase s i t e p r o d u c t i v i t y , such as f e r t i l i z a t i o n . The owner and farmer share the costs of seed, often on a 3/5 farmer, 2/5 owner b a s i s . The farmer supplies a l l the labor and machinery necessary f o r planting, tending, harvesting, and d e l i v e r y to product storage f a c i l i t i e s . The harvest i s then s p l i t between the farmer and owner, each, r e s p e c t i v e l y , receiving 3/5 and 2/5 of the harvest volume. In f o r e s t r y , further study would be needed to determine, among other things, an appropriate percentage s p l i t between tenure holders and the government. The object i s to allow tenure holders a competitive return on t h e i r investments, while c o l l e c t i n g appropriate rent f o r the government. A c l o s e l y r e l a t e d area which should be studied further i s the security of tenures. Any tenure system which would provide the means of capturing land p r o d u c t i v i t y rents would have to be secure enough to prevent future changes from eliminating future rents. Likewise, the effect of insecure tenures on investments i n processing plants should be studied. Tenure changes are i n e v i t a b l e . As s o c i a l values change, d i f f e r e n t c h a r a c t e r i s t i c s which a f f e c t these values must be adjusted. This study has begun research i n t o how these i n s e c u r i t i e s a f f e c t resource a l l o c a t i o n s . Another question to address i s : who should pay f o r , and benefit from, these changes? That i s , should tenure holders be compensated by governments for 142 tenure c h a r a c t e r i s t i c changes which decrease t h e i r benefits, or should they bear the costs of such changes as they have i n the past? The answer to t h i s question involves considering the p o s s i b i l i t y of a compensation p r i n c i p l e . A b r i e f discussion of t h i s issue follows. The question of who should pay for these types of changes r a i s e s fundamental questions about what tenures are i n terms of t h e i r l e g a l d e f i n i t i o n s as property r i g h t s . Courts uphold the r i g h t s of property tenure holders when a l l or a large portion of property r i g h t s are at stake, such as i n the case of government expropriations of p r i v a t e land. However, when pr i v a t e r i g h t s are attenuated by i n d i v i d u a l c h a r a c t e r i s t i c changes, as with the new B r i t i s h Columbia p o l i c y , compensation i s not always granted. There are many possible reasons why compensation may not occur when less than complete r i g h t s are at stake: 1. It i s often d i f f i c u l t to measure d o l l a r amounts of how a tenure holder's benefits are being a f f e c t e d . 2. Marginal changes of less than complete r i g h t s may not involve amounts of wealth great enough to j u s t i f y the transaction costs of court proceedings (Scott and Johnson, 1983). 3. Related to the second point, o f f e r i n g court standing to less than complete property r i g h t attenuations could open the door to a large number of court cases. L i v i n g i n a world abounding with e x t e r n a l i t i e s , every person's be n e f i t s , granted i n property, are bound to be a f f e c t e d by other people's and governmental actions. In considering whether tenure c h a r a c t e r i s t i c changes should be compensated, t h i s study has made progress i n determining the perceived costs of attenuations of tenure c h a r a c t e r i s t i c . However, the second and t h i r d reasons involve drawing a l i n e i n a gray zone of l i t i g a t i o n . 143 Because large amounts of wealth are at stake, and because changes of such amounts can g r e a t l y influence investment behavior, studying the p o s s i b i l i t y of a compensation p r i n c i p l e seems warranted. Es t a b l i s h i n g tenure c h a r a c t e r i s t i c s as compensable property r i g h t s would provide tenure holders with added s e c u r i t y . With more secure tenures, tenure holders would a l l o c a t e more resources to f o r e s t investments with t h e i r many external s o c i a l b e n e f i t s . With a better understanding of the economic and p o l i t i c a l implications of voluntary investment incentives, these incentives may be better compared with experience i n mandatory and reimbursed expenditure p o l i c i e s . In t h i s way, governments w i l l be better able to determine an optimum tenure. Tenures have evolved, and w i l l continue to evolve i n response to changing s o c i e t a l values. With further research i n t h i s f i e l d , the evolution of tenures may be able to take a more d i r e c t and e f f i c i e n t path towards meeting s o c i a l o b j e c t i v e s . 144 BIBLIOGRAPHY The Alberta Forests Act. 1971. Revised Statutes of Alberta, Chapter 37. Alchian, Armen A. 1969. Corporate management and property r i g h t s . In: Government p o l i c y and the re g u l a t i o n of corporate s e c u r i t i e s . H. Manne, editor. Washington, D.C. pp. 337-60. Alchian, Armen A. and Harold Demsetz. 1973. The property r i g h t s paradigm. 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If your company d i d not own a timber processing plant, would your company be able to survive f i n a n c i a l l y by managing and harvesting timber on i t s Tree Farm Licence lands and s e l l i n g i t to other plants? ( c i r c l e one) a. yes b. no comment: 2. Some companies make investments i n fo r e s t management that are not absolutely required by tenure s t i p u l a t i o n s and for which they are not reimbursed through Section 88. These a c t i v i t i e s may include: s i t e preparation and pla n t i n g over and above tenure requirements, brush c o n t r o l , spacing, f e r t i l i z i n g , and commercial thinning. Over the past f i v e years, has your company made investments of t h i s type on i t s Tree Farm Licence? ( c i r c l e one) a. yes b. no 153 3. Changes i n f o r e s t p o l i c y could harm, help, or have no e f f e c t on the p o t e n t i a l benefits you receive from your Tree Farm Licence ( i . e . the c o n t r i b u t i o n the land makes to the net revenue of your company). Printed on these cards are several hypothetical changes i n p o l i c y for Tree Farm Licences. Please: a. Sort the cards into three p i l e s . (Lay down cards l a b e l i n g each p i l e ) One p i l e of changes that would decrease the p o t e n t i a l b e n e f i t s of your tenure; one p i l e of changes that would increase your tenure's benefits; and one p i l e of changes that would have no e f f e c t on your tenure's b e n e f i t s . When sorting the cards, please assume that a l l c h a r a c t e r i s t i c s , other than the change pr i n t e d on the card, are held constant. b. Order the cards i n the benefits p i l e from most b e n e f i c i a l to least b e n e f i c i a l . c. Order the cards i n the harmful p i l e from most harmful to l e a s t harmful. (Lay down scale) d. Lay the cards i n the benefits p i l e along the bottom of the scale so that they are assigned ratings of how b e n e f i c i a l you think the p o l i c y would be. Please assume that a r a t i n g of +6 would be twice as b e n e f i c i a l as a r a t i n g of +3. Also assume you would not be charged for the benefits you would receive. You may reorder any cards you d e s i r e and may a l s o also l a y more than one card on any p o i n t . Some respondents have found i t useful to think of many of the changes i n terms of how many d o l l a r s per meter cubed the change would add to the company. e. Lay the cards i n the harmful p i l e along the bottom of the scale 154 so that they are assigned r a t i n g s of how harmful you t h i n k the p o l i c y would be. Please assume that a r a t i n g of -6 would be twice as harmful as a r a t i n g of -3, and that a change rated -3 i s as harmful as a r a t i n g of +3 i s b e n e f i c i a l . A l s o assume you would not be compensated f o r any a d d i t i o n a l c o s t s you would i n c u r . POLICIES RATINGS a. 1) e l i m i n a t i o n of l o g export r e s t r i c t i o n s f o r Tree Farm Licences 2) e l i m i n a t i o n of a l l l o g exports from Tree Farm Licences b. 1) e l i m i n a t i o n of Tree Farm Licence s t i p u l a t i o n s which r e q u i r e you to b u i l d or operate a p r o c e s s i n g p l a n t c. 1) e l i m i n a t i o n of M i n i s t r y approval requirements f o r the t r a n s f e r a b i l i t y of Tree Farm Licences 2) no Tree Farm Licence t r a n s f e r s allowed d. 1) e l i m i n a t i o n of enviromental p r o t e c t i o n g u i d e l i n e s f o r ha r v e s t i n g on Tree Farm Licences 155 2) increasing environmental protection guidelines i n harvesting on Tree Farm Licences so that any costs you may incur above and beyond what you would bear v o l u n t a r i l y are doubled e. 1) elimination of harvesting u t i l i z a t i o n requirements on Tree Farm Licences 2) increasing harvesting u t i l i z a t i o n requirements on Tree Farm Licences so that any costs you may incur above and beyond what you would bear v o l u n t a r i l y are doubled f. 1) complete reimbursements for a l l road bu i l d i n g costs on Tree Farm Licences 2) elimination of a l l Crown reimbursements f or road b u i l d i n g on Tree Farm Licences g. 1) elimination of s t i p u l a t i o n s requiring you to r e f o r e s t on Tree Farm Licences 2) increasing r e f o r e s t a t i o n s t i p u l a t i o n s on Tree Farm Licences so that any non-reimbursed costs you may incur above and beyond what you spend v o l u n t a r i l y are doubled h. 1) e l i m i n a t i o n of s t i p u l a t i o n s r e q u i r i n g you to protect the for e s t s of your Tree Farm Licence 2) increasing forest protection s t i p u l a t i o n s on Tree Farm Licences so that any costs you may incur above and beyond what you would bear v o l u n t a r i l y are doubled i . 1) e l i m i n a t i o n of pen a l t i e s on Tree Farm Licences f o r c u t t i n g under your annual allowable cut 2) doubling of penalties on Tree Farm Licences f o r c u t t i n g under your annual allowable cut j . 1) halving of penalties on Tree Farm Licences for c u t t i n g over your annual allowable cut 2) doubling of pen a l t i e s on Tree Farm Licences for c u t t i n g over your annual allowable cut k. 1) elimination of government sti p u l a t i o n s which require you to submit management, operating, and working plans f o r Tree Farm Licences 2) increases i n the thoroughness of management, operating and working plan preparations f o r Tree Farm Licences so that any costs you may incur i n excess of what your company would spend anyway i f i t were not required to submit plans to the government are doubled 1. 1) complete c e r t a i n t y that you w i l l have the opportunity to replace your Tree Farm Licence i n perpetuity 2) doubling the p r o b a b i l i t y of your not having the opportunity to replace your Tree Farm Licence m. 1) doubling the annual allowable cut of Tree Farm Licences halving the annual allowable cut of Tree Farm Licences complete reimbursement for a l l management expenditures on Tree Farm Licences through Section 88 elimination of a l l management expenditure reimbursements on Tree Farm Licences immediate cash reimbursement of Section 88 c r e d i t s for work done on Tree Farm Licences cash reimbursements of Section 88 c r e d i t s a f t e r 10 years for work done on Tree Farm Licences instead of being reimbursed through stumpage c r e d i t s doubling the amount of your current accumulated Section 88 c r e d i t s that were obtained from work done on your Tree Farm Licence c a n c e l l a t i o n of your current accumulated Section 88 cr e d i t s that were obtained from work done on your Tree Farm Licence 159 q. L) change from an area based Tree Farm Licence to a volume based Tree Farm Licence r . 1) elimination of provisions for Tree Farm Licences which allow for increases i n annual allowable cuts i n return for expenditures i n f o r e s t management which increase p r o d u c t i v i t y s. 1) elimination of sustained y i e l d cut controls on Tree Farm Licences In addition to these hypothetical p o l i c i e s , there are a l s o changes that could accur to Schedule B, Schedule A, and Crown Grants within your Tree Farm Licence. Such hypothetical changes have been p r i n t e d on these cards. Please lay these a d d i t i o n a l cards on top of the scale where you think they belong amongst the other cards. POLICIES RATINGS 1. Schedule B Lands t. 1) perpetual tenure terms 2) halving tenure terms to 12.5 ; years, 5 year evergreen u. 1) e l i m i n a t i o n of stumpage fees 2) doubling of stumpage fees 2. Schedule A Lands v. 1) perpetual Schedule A status for Timber licenc e s within Tree Farm Licences 2) halving the period before Schedule A Timber Licence lands within your Tree Farm Licence must be converted to Schedule B lands w. 1) e l i m i n a t i o n of Schedule A r o y a l t y charges 2) doubling Schedule A roy a l t y charges x. 1) the a p p l i c a t i o n of Crown Grant property taxes to Timber Licences within your Tree Farm Licence Crown Grants y. 1) the a p p l i c a t i o n of Schedule A r o y a l t y charges to Crown Grants z. 1) e l i m i n a t i o n of property taxes for Crown Grants within your Tree Farm Licence 2) doubling property taxes for Crown Grants within your Tree Farm Licence 161 4. Different tenures have evolved to serve d i f f e r e n t p r o v i n c i a l needs. Companies have varying expectations about how p o l i c y regarding various tenures w i l l change i n the future to accomodate changing needs. Printed on these cards are possible d i r e c t i o n s p o l i c y could go i n the next 20 years. a. For each card, c i r c l e which d i r e c t i o n , 1) or 2), you think future p o l i c y concerning Tree Farm Licences w i l l move. If you do not believe a change w i l l occur c i r c l e 3). Then, lay the card onto one of two p i l e s . (Lay down cards l a b e l i n g p i l e s . ) One p i l e of cards with p o l i c y changes and another of no changes. b. Sort the cards on which you have in d i c a t e d expected changes into three p i l e s ; one of changes which you b e l i e v e would benefit your company, one of changes which you believe would harm your company, and one p i l e of changes which you believe would have no e f f e c t on your company. c. Order the cards i n the benefit p i l e from most b e n e f i c i a l to least b e n e f i c i a l and lay them along the bottom of the scale i n order to assign them proportional ratings as you d i d before. d. Order the cards i n the harmful p i l e from most harmful to least harmful and lay them along the bottom of the scale i n order to assign them proportional ratings as you d i d before. POLICY DIRECTION RATING a. 1) increases, 2) decreases, or 3) no change i n log export r e s t r i c t i o n s on Tree Farm Licences increases, 2) decreases, or 3) no change i n Tree Farm Licence s t i p u l a t i o n s which require you to b u i l d or operate a processing plant increases, 2) decreases, or 3) no change i n the t r a n s f e r a b i l i t y of your Tree Farm Licence increases, 2) decreases, or 3) no change i n environmental gu i d e l i n e stringency for harvesting on Tree Farm Licences increases, 2) decreases, or 3) no change i n harvesting u t i l i z a t i o n requirements on Tree Farm Licences increases, 2) decreases, or 3) no change i n road cost reimbursements on Tree Farm Licences increases, 2) decreases, or 3) no change i n r e f o r e s t a t i o n requirements on Tree Farm Licences 163 h. 1) increases, 2) decreases, or 3) no change i n fo r e s t p r o t e c t i o n requirements on Tree Farm Licences i . 1) increases, 2) decreases, or 3) no change i n pena l t i e s for cu t t i n g under the annual allowable cut on Tree Farm Licences j . 1) increases, 2) decreases, or 3) no change i n penalties f o r cu t t i n g over the annual allowable cut on Tree Farm Licences k. 1) increases, 2) decreases, or 3) no change i n r e a l (net of i n f l a t i o n ) costs incurred f o r d r a f t i n g management, operating, and working plans f or Tree Farm Licences that are i n excess of what your company would spend anyway i f i t were not required to submit plans to the government increases, 2) decreases, or 3) no change i n the p r o b a b i l i t y of having the opportunity to replace your Tree Farm Licence increases, 2) decreases, or 3) no change i n the annual allowable cut on your Tree Farm Licence increases, 2) decreases, or 3) no change i n the porportion of management expenditures reimburseed by the Crown on Tree Farm Licences increases, 2) decreases, or 3) no change i n the period before Section 88 c r e d i t s are reimbursed for work done on Tree Farm Licences increases, 2) reductions, or 3) no change to accumulated Section 88 c r e d i t s for work done on Tree Farm Licences change from an area based Tree Farm Licence to a volume based Tree Farm Licence, or 3) no change 165 r . 1) t h e e l i m i n a t i o n , o r 3) no change o f p r o v i s i o n s wh ich a l l o w f o r i n c r e a s e s i n y o u r a n n u a l a l l o w a b l e c u t s i n r e t u r n f o r e x p e n d i t u r e s i n f o r e s t management w h i c h i n c r e a s e p r o d u c t i v i t y on T r e e Farm L i c e n c e s s . 1) t h e e l i m i n a t i o n , o r 3) no change o f s u s t a i n e d y i e l d c u t c o n t r o l s on T r e e Farm L i c e n c e s In a d d i t i o n t o t h e s e p o s s i b l e p o l i c y d i r e c t i o n s , t h e r e a r e a l s o changes t h a t c o u l d o c c u r t o S c h e d u l e B , S c h e d u l e A , and Crown G r a n t s w i t h i n y o u r T r e e Farm L i c e n c e . Such h y p o t h e t i c a l changes have been p r i n t e d on t h e s e c a r d s . P l e a s e c i r c l e t h e way i n w h i c h y o u t h i n k p o l i c y may change and l a y t h e s e a d d i t i o n a l c a r d s a l o n g t h e t o p o f t h e s c a l e where you t h i n k t h e y b e l o n g amongst t h e o t h e r c a r d s . POLICY DIRECTION RATINGS 1. S c h e d u l e B Lands t . 1) i n c r e a s e s , 2) d e c r e a s e s , o r 3) no change i n t h e t erm o f T r e e Farm L i c e n c e s u . 1) i n c r e a s e s , 2) d e c r e a s e s , o r 3) no change i n stumpage f e e s 2. S c h e d u l e A Lands 166 v. 1) increase, 2) decrease, or 3) no change to the period before Schedule A Timber Licence lands within Tree Farm Licences w i l l change to Schedule B lands w. 1) increase, 2) decrease, or 3) no change to current Schedule A royalty-charges x. 1) the addition of, or 3) no change to property taxes on Timber Licences within your Tree Farm Licence 3. Crown Grants y. 1) the addition of stumpage or roya l t y fees to timber cut, or 3) no change to the current s i t u a t i o n where no stumpage or r o y a l t y fees are payable on Crown Grants z. 1) increase, 2) decrease, or 3) no change to property taxes on Crown Grants within your Tree Farm Licence 5. a. Do you think the value of logs i n r e a l terms w i l l 1) increase, 2) decrease, or 3) not change over the next 20 years? ( c i r c l e e i t h e r 1), 2), or 3) ) b. Using the same scale that you used before, please rate the change i n log prices r e l a t i v e to the other changes as to how you expect 167 i t w i l l a f f e c t the p r o f i t a b i l i t y of your Tree Farm Licence. 6. a. Do you think d e l i v e r e d wood costs i n r e a l terms and net of stumpage w i l l 1) increase, 2) decrease, or 3) not change over the next 20 years? ( c i r c l e e i t h e r 1), 2), or 3) ) b. Using the same scale that you used before, please rate the change i n costs r e l a t i v e to the other changes as to how you expect i t w i l l a f f e c t the p r o f i t a b i l i t y of your Tree Farm Licence. 7. Please estimate the current amount of your Section 88 c r e d i t s that have been accumulated due to management expenditures on Tree Farm Licence lands. $ 8. Please estimate the t o t a l amount that your company paid i n stumpage for i t s Tree Farm Licence Schedule B lands i n 1985. $ 9. a. Are any of your p r i v a t e lands that are within your Tree Tree Farm Licence not Taxation Tree Farms? ( c i r c l e one) 1) yes 2) no b. If yes, why? Comments: 10. Please estimate the t o t a l amount that your company paid i n property taxes for i t s Crown Grants within your Tree Farm Licence i n 1985. $ 168 APPENDIX B: INTERVIEW FORM FOR TAXATION TREE FARMS Forest Company: Company Representative: Representative T i t l e : A l l questions of t h i s section r e f e r to Taxation Tree Farm #j (Despite the changes i n tax laws e f f e c t i v e January 1, please answer the following questions as i f Taxation Tree Farms existed as they d i d before. The study must analyze tax structure before the changes for two reasons. F i r s t , very l i t t l e i s known to date about the p a r t i c u l a r s of the new regulations. Thus many of the following questions would be unanswerable i f the new taxation laws were the subject of a n a l y s i s . Furthermore, because t h i s study i s seeking to explain past management expenditures, past taxation regulations need to be analyzed.) 1. Does your company own any timber processing plants? ( c i r c l e one) a. yes b. no (If the answer i s no, skip Question 2) 2 . If your company d i d not own a timber processing plant, would your company be able to survive f i n a n c i a l l y by managing and harvesting timber on i t s Taxation Tree Farm lands and s e l l i n g i t to other plants? ( c i r c l e one) a. yes 169 b. no comment: 3 . Changes i n f o r e s t p o l i c y could harm, help, or have no e f f e c t on the p o t e n t i a l b e n e f i t s you r e c e i v e from your "Taxation Tree Farm ( i . e . the c o n t r i b u t i o n the land makes to the net revenue of your company). P r i n t e d on these cards are s e v e r a l h y p o t h e t i c a l changes i n p o l i c y f o r Taxation Tree Farms. Please: a. Sort the cards i n t o three p i l e s . (Lay down cards l a b e l i n g each p i l e ) One p i l e of changes that would decrease your tenure's p o t e n t i a l b e n e f i t s ; one p i l e of changes that would i n c r e a s e your tenure's b e n e f i t s ; and one p i l e of changes that would have no e f f e c t on your tenure's b e n e f i t s . When s o r t i n g the cards, please assume that a l l c h a r a c t e r i s t i c s , other than the change p r i n t e d on the card, are h e l d constant. b. Order the cards i n the b e n e f i t s p i l e from most b e n e f i c i a l to l e a s t b e n e f i c i a l . c. Order the cards i n the harmful p i l e from most harmful to l e a s t harmful. d. Lay the cards i n the b e n e f i t s p i l e along the bottom of the s c a l e so that they are assigned r a t i n g s of how b e n e f i c i a l you t h i n k the p o l i c y would be. Please assume that a r a t i n g of +6 would be twice as b e n e f i c i a l as a r a t i n g of +3. A l s o , assume you would not be charged f o r any b e n e f i t s that you would r e c e i v e . You may reorder any cards you d e s i r e and may a l s o l a y down more than one card on any p o i n t . Some respondents have found i t u s e f u l to t h i n k of many of the changes i n terms of how many d o l l a r s per meter cubed the change would add t o the company. 170 e. Lay the cards i n the harmful p i l e along the bottom of the scale so that they are assigned ratings of how harmful you think the p o l i c y would be. Please assume a r a t i n g of -6 would be twice as harmful as a r a t i n g of -3 and that a change rated -3 i s as harmful as a r a t i n g of +3 i s b e n e f i c i a l . Also, assume you would not be compensated for any costs that would be incurred. POLICIES RATINGS a. 1) elimination of log export r e s t r i c t i o n s for Taxation Tree Farms 2) elimination of a l l log exports from Taxation Tree Farms b. 1) elimination of enviromental protection guidelines f o r harvesting on Taxation Tree Farms 2) increasing environmental protection guidelines i n harvesting on Taxation Tree Farms so that any costs you may incur above and beyond what you would bear v o l u n t a r i l y are doubled c. 1) elimination of harvesting u t i l i z a t i o n requirements on Taxation Tree Farms 2) i n c r e a s i n g harvesting u t i l i z a t i o n requirements on Taxation Tree Farms so that any costs you may incur above and beyond what you would bear v o l u n t a r i l y are doubled. d. 1) e l i m i n a t i o n of s t i p u l a t i o n s r e q u i r i n g you to reforest on Taxation Tree Farms 2) i n c r e a s i n g r e f o r e s t a t i o n s t i p u l a t i o n s on Taxation Tree Farms so that any costs you may c u r r e n t l y incur above and beyond what you would spend v o l u n t a r i l y are doubled e. 1) e l i m i n a t i o n of s t i p u l a t i o n s r e q u i r i n g you to protect the fo r e s t on Taxation Tree Farms 2) increasing forest protection s t i p u l a t i o n s on Taxation Tree Farms so that any costs you may incur above and beyond what you would bear v o l u n t a r i l y are doubled f . 1) e l i m i n a t i o n of penalties on Taxation Tree Farms for c u t t i n g under your annual allowable cut 2) doubling of pen a l t i e s on Taxation Tree Farms f o r c u t t i n g under your annual allowable cut g. 1) halving of penalties on Taxation Tree Farms for c u t t i n g over your annual allowable cut 2) doubling of penalties on Taxation Tree Farms f o r c u t t i n g over your annual allowable cut h. 1) reimbursement of any costs that you may incur i n d r a f t i n g management, operating, and working plans f o r Taxation Tree Farms that are i n excess of what your company would spend anyway i f i t were not required to submit plans to the government 2) increases i n the thoroughness of management, operating and working plan preparations for Taxation Tree Farms so that any costs you may incur i n excess of what your company would spend anyway i f i t were not required to submit plans to the government are doubled 173 i . 1) doubling the annual allowable cut of Taxation Tree Farms 2) halving the annual allowable cut of Taxation Tree Farms j . 1) eliminating property taxes paid on Taxation Tree Farms 2) doubling property taxes paid on Taxation Tree Farms k. 1) elimination of provisions for Taxation Tree Farms which allow for increases i n annual allowable cuts i n return f o r expenditures i n forest management which increase p r o d u c t i v i t y 1. 1) elimination of sustained y i e l d cut controls on Taxation Tree Farms 4. D i f f e r e n t f o r e s t p o l i c i e s have evolved to serve d i f f e r e n t p r o v i n c i a l needs. Companies have varying expectations about how forest p o l i c y w i l l change i n the future to accomodate changing needs. Printed on these cards are p o s s i b l e d i r e c t i o n s p o l i c y could go i n the next 20 years. a. For each card, c i r c l e which d i r e c t i o n , 1) or 2), you think future p o l i c y concerning Taxation Tree Farms w i l l move. If you do not bel i e v e a change w i l l occur c i r c l e 3 ) . Then, l a y the card i n t o one of two p i l e s . (Lay down cards l a b e l i n g p i l e s . ) One p i l e of p o l i c y changes and another of no changes. b. Sort the cards on which you have indi c a t e d expected changes i n t o 174 three p i l e s ; one of changes which you believe would benefit your company, one of changes which you beli e v e would harm your company, and one p i l e of changes that you beli e v e would have no effect on your company. c. Order the cards i n the benefit p i l e from most b e n e f i c i a l to least b e n e f i c i a l and lay them on the r i g h t side of the scale i n order to assign them proportional ratings as you d i d before. d. Order the cards i n the harmful p i l e from most harmful to least harmful and lay them on the l e f t side of the scale i n order to assign them proportional ratings as you d i d before. POLICY DIRECTION RATING a. 1) increases, 2) decreases, or 3) no change i n log export r e s t r i c t i o n s on Taxation Tree Farms b. 1) increases, 2) decreases, or 3) no change i n environmental guideline stringency f o r harvesting on Taxation Tree Farms c. 1) increases, 2) decreases, or 3) no change i n harvesting u t i l i z a t i o n requirements on Taxation Tree Farms increases, 2) decreases, or 3) no change i n r e f o r e s t a t i o n requirements on Taxation Tree Farms increases, 2) decreases, or 3) no change i n forest p r o t e c t i o n requirements on Taxation Tree Farms increases, 2) decreases, or 3) no change i n penalties f o r cutting under the annual allowable cut on Taxation Tree Farms increases, 2) decreases, or 3) no change i n penalties for cutting over the annual allowable cut on Taxation Tree Farms increases, 2) decreases, or 3) no change i n r e a l costs incurred for d r a f t i n g management, operating, and working plans on Taxation Tree Farms that are i n excess of what your company would spend anyway i f i t were not required to submit plans to the government 176 1) increases, 2) decreases, or 3) no change i n the annual allowable cut on your Taxation Tree Farm 1) increases, 2) decreases, or 3) no change i n property taxes on Taxation Tree Farms 1) the elimination, or 3) no change of provisions which allow for increases i n your annual allowable cuts i n return for expenditures i n forest management which increase p r o d u c t i v i t y on Taxation Tree Farms 1) the elimination, or 3) no change to sustained y i e l d cut controls on Taxation Tree Farms Do you think the value of logs i n r e a l terms w i l l 1) increase, 2) decrease, or 3) not change over the next 20 years? ( c i r c l e either 1), 2), or 3) ) Using the same scale that you used before, please rate the change i n log pr i c e s r e l a t i v e to the other changes as to how you expect i t w i l l a f f e c t the p r o f i t a b i l i t y of your Taxation Tree Farm. 177 a. Do you think d e l i v e r e d wood costs i n r e a l terms w i l l 1) increase, 2) decrease, or 3) not change over the next 20 years? ( c i r c l e either 1), 2) or 3) ) b. Using the same scale that you used before, please rate the change i n costs r e l a t i v e to the other changes as to how you expect i t w i l l a f f e c t the p r o f i t a b i l i t y of your Taxation Tree Farm. Please estimate the amount your company paid i n property taxes on i t s Taxation Tree Farm i n 1985. $ 178 APPENDIX C: INTERVIEW FORM FOR CROWN GRANTS Fores t Company: Company R e p r e s e n t a t i v e : Represen ta t ive T i t l e : A l l ques t ions of t h i s s e c t i o n r e f e r to Crown G r a n t s . (Crown Grants a re d e f i n e d as any p r i v a t e t imber land o u s t s i d e of Tree Farm Licences and T a x a t i o n Tree Farms.) L o c a t i o n (of l a r g e s t h o l d i n g ) : (Desp i te the changes i n tax laws e f f e c t i v e January 1, p l ease answer the f o l l o w i n g ques t ions as i f Crown Grants ou t s i de of Taxa t ion Tree Farms and Tree Farm L icences s t i l l e x i s t e d as they d i d be fo re . The study must ana lyze tax s t r u c t u r e before the changes fo r two reasons . F i r s t , ve ry l i t t l e i s known to da te about the p a r t i c u l a r s of the new r e g u a l t i o n s . Thus many of the ques t ions would be unanswerable i f the new t a x a t i o n laws were the subject of a n a l y s i s . Fur thermore, because t h i s study i s seeking to e x p l a i n pas t management expend i tu res , pas t t a x a t i o n r e g u l a t i o n s need to be a n a l y z e d . ) 1. Does your company own any t imber p roces s ing p l a n t s ? ( c i r c l e one) a . yes b . no ( I f the answer i s no, s k i p Ques t ion 2) 2 . I f your company d i d not own a t imber p rocess ing , p l a n t , would your 179 company be able to survive f i n a n c i a l l y by managing and harvesting timber on i t s Crown Grant lands and s e l l i n g i t to other plants? ( c i r c l e one) a. yes b. no comment: 3. Changes i n forest p o l i c y could harm, help, or have no e f f e c t on the p o t e n t i a l benefits you receive from your forest land ( i . e . the contribution the land makes to the net revenues of your company). Printed on these cards are several hypothetical changes i n p o l i c y for Crown Grant s. a. Sort the cards i n t o three p i l e s . (Lay down cards l a b e l i n g each p i l e . ) One p i l e of changes that would decrease your tenure's p o t e n t i a l b e n e f i t s ; one p i l e of changes that would increase your tenure's benef i t s ; and one p i l e of changes that would have no e f f e c t on your tenure's b e n e f i t s . When sorting the cards, please assume that a l l c h a r a c t e r i s t i c s , other than the change p r i n t e d on the card, are held constant. b. Order the cards i n the benefits p i l e from most b e n e f i c i a l to l e a s t b e n e f i c i a l . c. Order the cards i n the harmful p i l e from most harmful to l e a s t harmful. d. Lay the cards from the benefits p i l e along the bottom of the scale so that they are assigned ratings of how b e n e f i c i a l you think the p o l i c y would be. Please assume that a r a t i n g of +6 would be twice as b e n e f i c i a l as a r a t i n g of +3. Also, assume you would not be charged for any benefits that you would receive. You may reorder 180 any cards you d e s i r e and may a l s o l a y more than one ca rd on any p o i n t . Some respondents have found i t u s e f u l to t h i n k of many of the changes i n terms of how many d o l l a r s per meter cubed the change would add to your company. e. Lay the cards from the harmful p i l e a long the bottom of the s c a l e so tha t they are ass igned r a t i n g s of how harmful you t h i n k the p o l i c y would be . P l ease assume that a r a t i n g of -6 would be tw ice as harmful as a r a t i n g of -3, and tha t a change r a t e d -3 i s as harmful as a r a t i n g of +3 i s b e n e f i c i a l . A l s o , assume you would not r e c e i v e any compensation for cos t s that would be i n c u r r e d . POLICIES RATINGS a . 1) e l i m i n a t i o n of l o g export r e s t r i c t i o n s f o r Crown Grants 2) e l i m i n a t i o n of a l l l o g exports from Crown Grants b . 1) e l i m i n a t i o n of envi romenta l p r o t e c t i o n g u i d e l i n e s fo r h a r v e s t i n g on Crown Grants 2) i n c r e a s i n g environmental p r o t e c t i o n g u i d e l i n e s t r i ngency i n h a r v e s t i n g on Crown Grants so tha t any c o s t s you may i n c u r above and beyond what you would bear v o l u n t a r i l y are doub led . c . 1) e l i m i n a t i o n o f s t i p u l a t i o n s f o r Crown Grants r e q u i r i n g you to p r o t e c t the f o r e s t 181 2) i n c r e a s i n g f o r e s t p r o t e c t i o n s t i p u l a t i o n s fo r Crown Grants so that any cos t s you may i n c u r above and beyond what you would bear v o l u n t a r i l y a re doubled d . 1 ) e l i m i n a t i n g p rope r ty taxes p a i d on Crown Grants 2) d o u b l i n g p r o p e r t y taxes p a i d on Crown Grants 4 . D i f f e r e n t f o r e s t p o l i c i e s have evolved to serve d i f f e r e n t p r o v i n c i a l needs. Companies have v a r y i n g expec ta t ions about how f o r e s t p o l i c y w i l l change i n the fu tu r e t o accomodate changing needs. P r i n t e d on these cards a re p o s s i b l e d i r e c t i o n s p o l i c y c o u l d go i n the next 2 0 y e a r s . a . For each c a r d , c i r c l e which d i r e c t i o n , 1 ) or 2 ) , you t h i n k fu tu re p o l i c y concern ing Crown Grants w i l l move. I f you do not b e l i e v e a change w i l l occur c i r c l e 3 ) . Then, l a y the c a r d onto one of two p i l e s . (Lay down Cards l a b e l i n g p i l e s . ) One p i l e of cards w i t h p o l i c y changes and another of no changes. b . Sor t the cards on which you have i n d i c a t e d expected changes i n t o three p i l e s ; one of changes which you b e l i e v e would b e n e f i t your company, one of changes which you b e l i e v e would harm your company, and one of changes which you b e l i e v e would have no e f f e c t on your company. c . Order the cards i n the b e n e f i t p i l e from most b e n e f i c i a l to l e a s t b e n e f i c i a l and l a y them on the r i g h t s i d e of the s c a l e i n order to a s s i g n them p r o p o r t i o n a l r a t i n g s as you d i d b e f o r e . d . Order the cards i n the harmful p i l e from most harmful t o l e a s t 182 harmful and lay them on the l e f t side of the scale i n order to assign them proportional ratings as you d i d before. POLICY DIRECTION RATING a. 1) increases, 2) decreases, or 3) no change i n log export r e s t r i c t i o n s on Crown Grants b. 1) increases, 2) decreases, or 3) no change i n environmental guidelines for harvesting on Crown Grants c. 1) increases, 2) decreases, or 3) no change i n forest protection requirements on Crown Grants d. 1) increases, 2) decreases, or 3) no change i n property taxes on Crown Grants Do you think the value of logs i n r e a l terms w i l l 1) increase, 2) decrease, or 3) not change over the next 20 years? ( c i r c l e either 1), 2), or 3) ) Using the same scale that you used before, please rate the change i n log p r i c e s r e l e t i v e to the other changes as to how you expect i t w i l l a f f e c t the p r o f i t a b i l i t y of your Crown Grant. Do you think delivered wood costs i n r e a l terms w i l l 1) increase, 2) decrease, or 3) not change over the next 20 years? ( c i r c l e 183 either 1), 2), or 3) ) b. Using the same scale that you used before, please rate the change i n costs r e l a t i v e to the other changes as to how you expect i t w i l l a f f e c t the p r o f i t a b i l i t y of your Crown Grant. 7. Please estimate the amount your company paid i n property taxes on i t s Crown Grants i n 1985. $ 8. a. Are your Crown Grants held f o r any purpose other than timber production? (If the answer i s no, skip part b.) b. If so, f o r which of the following purposes? 1) Recreational Services 2) Right of Way Access to Other Timber Holdings 3) Other (please s p e c i f y ) : 184 APPENDIX D: SUMMARY STATISTICS OF DESCRIPTIVE NUMBERS BY TENURE TYPE Table DI: Freedom Rating Summary S t a t i s t i c s of Crown Grants 185 Table D2: Attenuation Rating Summary S t a t i s t i c s of Crown Grants 186 Table D3: Relati v e Importance Number Summary S t a t i s t i c s of Crown Grants 187 Table D4: Freedom Ratio Summary S t a t i s t i c s of Crown Grants 188 Table D5: Freedom-Rating Summary S t a t i s t i c s f o r Taxation Tree Farms 189 Table D6: Attenuation Rating Summary S t a t i s t i c s of Taxation Tree Farms 191 Table D7: Relati v e Importance Number Summary S t a t i s t i c s of Taxation Tree Farms 193 Table D8: Freedom Ratio Summary S t a t i s t i c s of Taxation Tree Farms 194 Table D9: Freedom Rating Summary S t a t i s t i c s of Tree Farm Licences 197 Table D10: Attenuation Rating Summary S t a t i s t i c s of Tree Farm Licences 201 Table D l l : Relative Importance Number Summary S t a t i s t i c s of Tree Farm Licences 205 Table D12: Freedom Ratio Summary S t a t i s t i c s of Tree Farm Licences 208 TABLE D1: FREEDOM RATING SUMMARY STATISTICS OF CROWN GRANTS ft o f p o s # o f n e g P o l i c y C h a n g e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 1 . E 1 i ra i n a t i n g 19 6 . 37 3 . 42 1 1 .66 0 .00 10.00 P r o p e r t y T a x e s * 1 -6 .00 0. .00 0 .00 -6 .00 6.00 20 5 . 75 4 . 32 18 . 70 -6 . OO 10.00 2 . E l i m i n a t i n g 20 1 . 58 2 . 36 5 . 56 0. .00 7 .00 E n v i r o n m e n t a l 0 0. .00 0. 00 0 .00 0. .00 0 .00 P r o t e c t i o n 20 1 . 58 2 .36 5 .56 0 .00 7 .00 G u i d e l i n e s * 3 . E 1 i m i n a t i n g 19 1 . 28 2 . 10 4 .42 o .00 6 OO F o r e s t P r o t e c t i o n 1 - 1 .OO O .00 0 .00 -1 .00 -1 .OO S t i p u l a t i o n s * 20 1 . 16 2 . 1 1 4 .45 -1 .00 6.00 4. E l i m i n a t i n g 18 1 . 56 2 . 55 6 .53 0 .00 8 . 50 L o g E x p o r t 2 -6 .50 2 . 12 4 .50 -8 .00 - 5 . 0 0 C o n t r o l s 20 0 . 75 3 . 50 12 . 22 -8 .00 8 . 50 * P o l i c y c h a n g e s w i t h m e a n r a t i n g s s i g n i f i c a n t l y g r e a t e r t h a n z e r o , a=5%. TABLE D2: ATTENUATION RATING SUMMARY STATISTICS OF CROWN GRANTS tt o f n e g tt o f p o s P o l i c y C h a n g e r a t i n g s + r a t i n q s = N M e a n S t D e v V a r M i n Max 1 . D o u b l i n g 2 0 - 6 . . 8 3 3 . . 0 7 9 . 4 0 - 1 0 . O O - 1 . 0 0 P r o p e r t y 0 0 . . 0 0 O . OO 0 . 0 0 0 . O O 0 . 0 0 T a x e s * 2 0 - 6 . . 8 3 3 . 0 7 9 . 4 0 - 1 0 .OO - 1 . O O 2 . I n c r e a s i n g 2 0 - 2 . 3 9 2 . . 4 9 6 . 2 0 - 7 .OO 0 . 0 0 E n v i r o n m e n t a 1 0 0 . . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 P r o t e c t i o n 2 0 - 2 . 3 9 2 . . 4 9 6 . 2 0 - 7 . 0 0 0 . 0 0 G u i d e l i n e s * 3 . I n c r e a s i n g 2 0 - 2 .OO 2 . . 4 0 5 . 74 - 7 . 7 5 O . O O F o r e s t P r o t e c t i o n 0 0 .OO 0 .OO 0 . 0 0 0 . O O O . O O S t i p u l a t i o n s * 2 0 - 2 OO 2 . 4 0 5 . 74 - 7 . 7 5 O . O O 4 . E 1 i m i n a t i n g 18 - 2 . . 3 1 3 . . 17 10 . 0 3 - 9 . 0 0 0 . 0 0 L o g E x p o r t s * 2 7 . . 5 0 3 . . 54 12 . 5 0 5 . 0 0 1 0 . 0 0 2 0 - 1 . . 3 3 4 . . 3 3 18 . 74 - 9 . 0 0 1 0 . 0 0 * P o l i c y c h a n g e s w i t h m e a n r a t i n g s s i g n i f i c a n t l y l e s s t h a n z e r o , a=5%. TABLE D3: RELATIVE IMPORTANCE NUMBER SUMMARY STATISTICS OF CROWN GRANTS C h a r a c t e r i s t i c S p e c t r u m M e a n S t D e v V a r M i n Max 1 . P r o p e r t y T a x e s 2 . L o g E x p o r t s * 3 . E n v i r o n m e n t a l P r o t e c t i o n G u i d e l i n e s 4 . F o r e s t P r o t e c t i o n S t i p u l a t i o n s 2 0 2 0 2 0 2 0 1 2 . 8 8 4 . 8 8 3 . 9 6 3 . 2 6 6 . 27 6 . 1 7 4 . 37 3 . 8 6 3 9 . 34 3 8 . 0 5 1 9 . 1 3 1 4 . 9 0 2 . 0 0 2 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 1 8 . 0 0 14 . 0 0 13 . 0 0 * S p e c t r a w i t h m e a n r a t i n g s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . TABLE D 4 : FREEDOM RATIO SUMMARY STATISTICS OF CROWN GRANTS C h a r a c t e r i s t i c S p e c t r u m  tt o f tt o f tt o f _> O < 0 a s s i g n e d r a t i o s + r a t i o s + 0 r a t i o s N M e a n S t D e v V a r M i n Max 1 . P r o p e r t y T a x e s * 2 . L o g E x p o r t s 19 2 0 2 0 0 . 4 7 0 . 0 0 0 . 4 0 - . 4 7 0 . 1 1 0 . 0 0 0 . 1 7 0 . 0 4 0 . 0 1 O . O O 0 . 0 0 0 . 0 0 0 . 0 3 0 . 0 0 2 0 . 0 0 - . 5 0 0 . 5 3 0 . 0 0 0 . 5 0 - . 4 4 3 . E n v i r o n m e n t a l P r o t e c t i o n Gu i d e l i n e s * * 2 0 2 0 0 . 3 6 0 . 0 0 0 . 3 6 0 . 0 0 0 . 1 3 0 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 4 . F o r e s t P r o t e c t i o n S t i p u l a t i o n s * 19 2 0 O . 2 8 - 1 . 0 0 O . 3 3 0 . 0 0 0 . 1 1 0 . 0 0 O . O O - 1 . O O 1 . 0 0 •1 . 0 0 * M e a n r a t i o e x p e c t e d t o b e 0 . 5 0 . H Q : u E ( , = 0 . 5 0 . * * M e a n r a t i o e x p e c t e d t o b e 0 . 5 0 a n d t h e s a m p l e m e a n s u p p o r t s t h e n u l l h y p o t h e s i s , a = 5 % . TABLE D5: FREEDOM RATING SUMMARY STATISTICS FOR TAXATION TREE FARMS ti o f p o s ti o f n e g P o l i c y C h a n g e r a t i n g s + r a t i n q s = N M e a n S t D e v V a r M i n Max 1 . E l i m i n a t i n g 22 7 . . 4 7 3 . 2 0 10 . 2 3 0 . 0 0 1 0 . 0 0 P r o p e r t y T a x e s * 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 22 7 . 4 7 3 . 2 0 10 . 2 3 0 . 0 0 1 0 . 0 0 2 . E 1 i mi n a t i n g 21 4 . 5 2 3 . 4 4 1 1 . 8 3 0 .OO 9 . 5 0 L o g E x p o r t 1 - 5 . . 0 0 0 . 0 0 O .OO - 5 . 0 0 - 5 . 0 0 C o n t r o l s * 22 4 . . 0 9 3 . 9 2 15 . 3 9 - 5 . 0 0 9 . 5 0 3 . E 1 i m i n a t i n g 22 3 . 4 4 3 . . 2 8 10 . 7 9 0 . . 0 0 9 . 0 0 P e n a 1 1 i e s F o r 0 0 . . 0 0 0 . . 0 0 0 . 0 0 0 . oo 0 . 0 0 C u t t i n g U n d e r 22 3 . 4 4 3 . 2 8 10 . 7 9 0 . 0 0 9 . 0 0 t h e A A C * 4 . H a l v i n g P e n a l t i e s 2 1 2 . 4 0 2 . 9 7 8 . 8 4 0 oo 9 . O O F o r C u t t i n g O v e r 1 - 5 . . 7 5 O . 0 0 O .OO - 5 . . 7 5 - 5 . 7 5 t h e A A C * 22 2 . . 0 3 3 . 3 8 1 1 . 44 - 5 . . 7 5 9 . 0 0 5 . R e i m b u r s i n g 22 2 . 0 6 2 . . 6 9 7 . 2 6 • 0 . 0 0 9 . 0 0 N o n - V o l u n t a r y 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 P l a n n i n g C o s t s * 2 2 2 . 0 6 2 . 6 9 7 . 2 6 0 . 0 0 9 . 0 0 Table D5 continued tt o f p o s tt o f n e g P o l i c v C h a n q e r a t i n q s + r a t i n q s = N M e a n S t D e v V a r M i n Max 6 . E 1 i mi n a t i n g 19 3 . . 13 3 . . 34 1 1 . . 14 0 . 0 0 8 . 0 0 S u s t a i n e d Y i e l d 3 - 7 . . 0 0 1 . . 8 9 3 . . 5 6 - 8 . 7 5 - 5 . 0 0 C u t C o n t r o l s * 22 1 . . 7 5 4 . . 7 5 22 . . 5 5 - 8 . . 7 5 8 . 0 0 7 . E 1 i m i n a t i n g 18 1 . 7 9 2 . . 6 4 6 . . 9 4 0 .OO 7 . 5 0 H a r v e s t i n g 4 - 2 . . 94 3 . . 8 8 15 . . 0 2 - 8 . 7 5 - 1 . O O U t i 1 i z a t i o n 22 0 . . 9 3 3 . . 3 5 1 1 . . 2 5 - 8 . . 7 5 7 . 5 0 R e q u i r e m e n t s 8 . E 1 i m i n a t i n g 2 0 1 . 2 8 2 . 5 5 6 . 5 1 0 . . 0 0 9 . 7 5 E n v i r o n m e n t a l 2 - 3 . . 0 0 2 . . 8 3 8 . , 0 0 - 5 , . 0 0 - 1 . 0 0 P r o t e c t i o n 22 0 . . 8 9 2 . . 8 0 7 . . 8 5 - 5 . . 0 0 9 . 7 5 Gu i d e 1 i n e s 9 . E 1 i m i n a t i n g 18 0 . 54 . 1 . 6 9 2 . 8 4 0 . 0 0 7 . 0 0 F o r e s t P r o t e c t i o n 4 - 2 . 0 6 2 . 13 4 . 52 - 5 . 2 5 - 1 . O O S t i p u l a t i o n s 22 0 . 0 7 2 . 0 0 4 , . 0 0 - 5 . . 2 5 7 . 0 0 1 0 . D o u b l i n g 15 2 . 10 2 . 9 4 8 . 6 5 0 . 0 0 9 . 0 0 t h e A A C 7 - 4 . 4 3 3 . 3 1 10 . 9 3 - 9 . 7 5 - 1 . 0 0 22 0 . . 0 2 4 . 3 1 18 . 5 8 - 9 . 7 5 9 . O O 1 1 . E 1 i m i n a t i n g 17 0 . 15 O . 6 1 O . 37 0 . OO 2 . 5 0 R e f o r e s t a t i o n 5 - 5 . 9 5 2 . 5 0 6 . 2 6 - 8 . 0 0 - 2 . O O R e q u i r e m e n t s 22 - 1 . 24 2 . 8 8 8 . 3 1 - 8 . 0 0 2 . 5 0 * P o l i c y c h a n g e s w i t h m e a n r a t i n g s s i g n i f i c a n t l y g r e a t e r t h a n z e r o , a=5%. TABLE D 6 : ATTENUATION RATING SUMMARY STATISTICS OF TAXATION TREE FARMS tt o f n e g ft o f p o s P o l i c y C h a n g e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 1 . D o u b l i n g 22 - 8 . 0 2 2 . . 5 1 6 2 8 - 1 0 . 0 0 - 1 . 0 0 P r o p e r t y 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 T a x e s * 22 - 8 . 0 2 2 . . 5 1 6 . 2 8 - 1 0 . 0 0 - 1 . O O 2 . H a l v i n g 22 - 6 . 57 2 . . 6 9 7 . 2 2 - 9 . 0 0 0 . 0 0 t h e A A C * 0 0 . 0 0 O . OO 0 . 0 0 0 .oo O . O O 22 - 6 . 5 7 2 . 6 9 7 . 22 - 9 . oo O . O O 3 . E 1 i m i n a t i n g 22 - 4 . 0 9 3 . 14 9 . 8 7 - 9 . oo O . O O L o g E x p o r t s * 0 0 . 0 0 0 OO 0 . 0 0 0 . 0 0 0 . 0 0 22 - 4 . 0 9 3 . 14 9 . 8 7 - 9 . 0 0 0 . 0 0 4 . E l i m i n a t i n g 22 - 3 . 5 0 3 . . 2 5 10 . 5 5 - 9 . 2 5 0 . 0 0 A C E 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 P r o v i s i o n s * , ( 1 ) 22 - 3 . 5 0 3 . 2 5 10 . 5 5 - 9 . 2 5 0 . 0 0 5 . D o u b l i n g o f 22 - 3 . 17 3 . . 2 8 10 . 7 3 - 1 0 . 0 0 O . O O P e n a l t i e s f o r O 0 . 0 0 0 OO o . 0 0 0 . 0 0 0 . 0 0 C u t t i n g U n d e r 22 - 3 . 17 3 . 2 8 10 . 7 3 - 1 0 . 0 0 0 . 0 0 t h e A A C * Table D6 continued # o f p o s H o f n e g P o 1 i c v C h a n g e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 6 . I n c r e a s i n g 22 - 3 . 0 9 2 . 7 1 7 . 3 3 - 7 . 0 0 0 . 0 0 E n v i r o n m e n t a 1 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 P r o t e c t i o n 22 - 3 . 0 9 2 . . 7 1 7 . 3 3 - 7 . 0 0 0 . 0 0 G u i d e l i n e s * 7 . I n c r e a s i n g 22 - 2 . 5 2 2 . . 8 7 8 . 2 2 - 9 . 0 0 O . O O F o r e s t P r o t e c t i o n 0 0 . O O O. . 0 0 O .OO 0 .OO O . O O S t i p u l a t i o n s * 22 - 2 . 5 2 2 . 8 7 8 . 22 - 9 .OO O . O O 8 . I n c r e a s i n g 22 - 2 . 5 1 2 . 9 8 8 . 8 7 - 9 . 0 0 0 . 0 0 H a r v e s t i n g 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 U t i 1 i z a t i o n 2 2 - 2 . 5 1 2 . 9 8 8 . 8 7 - 9 . 0 0 0 . 0 0 R e q u i r e m e n t s * 9 . D o u b l i n g 21 - 2 . 3 9 3 . 0 8 9 . 4 9 - 1 0 .OO O . O O P e n a l t i e s F o r 1 9 . 2 5 0 . 0 0 0 . 0 0 9 . 2 5 9 . 2 5 C u t t i n g O v e r 2 2 - 1 . 8 6 3 . 9 0 15 . 2 0 - 1 0 . 0 0 9 . 2 5 t h e A A C * 1 0 . I n c r e a s i n g 21 - 1 . 9 3 2 . 3 3 5 . 4 1 - 7 . 0 0 0 . 0 0 N o n - V o l u n t a r y 1 0 . 5 0 0 . 0 0 0 . 0 0 0 . 5 0 0 . 5 0 P l a n n i n g C o s t s * 22 - 1 . 8 1 2 . 3 3 5 . 4 2 - 7 . 0 0 0 . 5 0 1 1 . I n c r e a s i n g 2 0 2 . 2 2 . 8 3 8 . 0 0 - 7 . 0 0 0 . 0 0 R e f o r e s t a t i o n 2 5 . 3 8 4 . 7 7 22 . 78 2 . 0 0 8 . 7 5 R e q u i r e m e n t s * 22 - 1 . 5 1 3 . 6 4 13 . 3 0 - 7 . 0 0 8 . 7 5 * P o l i c y c h a n g e s w i t h m e a n r a t i n g s s i g n i f i c a n t l y l e s s t h a n z e r o . a=5%. ( 1 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . ^o K3 TABLE D7: RELATIVE IMPORTANCE NUMBER SUMMARY STATISTICS OF TAXATION TREE FARMS C h a r a c t e r i s t i c S p e c t r u m M e a n S t D e v M i n Max 1 . P r o p e r t y T a x e s 2 . A n n u a l A l l o w a b l e C u t s * * 3 . L o g E x p o r t s 4 . U n d e r - c u t t i n g P e n a l t i e s * 5 . O v e r - c u t t i n g P e n a l t i e s * 6 . H a r v e s t i n g U t i l i z a t i o n R e q u i r e m e n t s 7 . E n v i r o n m e n t a l P r o t e c t i o n G u i d e l i n e s 8 . N o n - v o l u n t a r y P l a n n i n g C o s t s 9 . S u s t a i n e d Y i e l d C u t C o n t r o l s * 1 0 . A C E P r o v i s i o n s ( 1 ) * 1 1 . R e f o r e s t a t i o n R e q u i r e m e n t s * 1 2 . F o r e s t P r o t e c t i o n S t i p u l a t i o n s 2 2 2 2 22 22 2 2 22 22 2 2 22 22 2 2 22 15 . 4 9 8 . 5 4 8 . 4 1 6 . 6 1 5 . 2 6 4 . 4 7 4 . 3 0 3 . 9 2 3 . 6 6 3 . 5 0 3 . 4 7 3 . 0 1 5 . 2 7 3 . 9 8 6 . 1 2 6 . 0 4 6 . 0 1 4 . 7 1 4 . 4 4 4 . 10 3 . 4 2 3 . 2 5 4 . 0 1 3 . 0 0 2 7 . 8 1 1 5 . 8 5 37 . 31 3 6 . 5 3 36 . 1 1 22 . 14 19 . 7 5 16 . 84 1 1 . 7 3 1 0 . 5 5 16 . 72 9 . 27 1 . 0 0 1 . 0 0 0 . 0 0 O . O O 0 . 0 0 0 . 0 0 0 . 0 0 O . O O 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 ' 2 0 . 0 0 1 8 . 0 0 18 . 0 0 19 . O O 19 . 0 0 1 4 . 0 0 16 . 5 0 15 . O O 8 . 7 5 9 . 2 5 16 . 5 0 9 . 0 0 * S p e c t r a w i t h m e a n r a t i n g s s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . ( 1 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . TABLE D8: FREEDOM RATIO SUMMARY STATISTICS OF TAXATION TREE FARMS C h a r a c t e r i s t i c S p e c t r u m  tt o f tt o f tt o f > 0 < 0 a s s i g n e d r a t i o s + r a t i o s + 0 r a t i o s M e a n S t D e v V a r M i n M a x 1 . P r o p e r t y T a x e s * * 2 . A n n u a l A l l o w a b l e C u t 3 . L o g E x p o r t s 4 . U n d e r - c u t t i n g P e n a l t i e s * * 2 2 15 18 22 22 22 2 2 22 0 . 4 5 0 . 0 0 0 . 15 - 1 . 0 0 0 . 5 2 O . O O 0 . 4 8 0 . 0 0 0 . 1 5 0 . 0 2 O . O O 0 . 5 G O . 0 0 0 . OO O . OO O . O O 0 . 2 0 0 . 0 0 0 . 2 2 0 . 0 0 0 . 2 5 0 . 0 0 0 . 0 4 O . 0 0 0 . 0 5 0 . 0 0 - 1 . 0 0 - 1 . 0 0 0 . 0 5 0 . 0 0 0 . 0 6 0 . 0 0 0 . 0 0 O . O O 0 . 0 0 0 . 0 0 1 . 0 0 O . O O 0 . 9 3 0 . 0 0 5 . O v e r - c u t t i n g P e n a l t i e s * * 13 2 2 0 . 4 7 - O . 3 8 0 . 2 7 O . O O 0 . 0 1 O . O O 0 . 0 0 - O . 3 8 1 . O O - O . 3 8 Table D8 continued C h a r a c t e r i s t i c S p e c t r u m  tt o f 2. 0 r a t i o s tt o f < O r a t i o s tt o f a s s i g n e d O r a t i o s M e a n S t D e v V a r M i n Max 6 . H a r v e s t i n g U t i 1 i z a t i o n R e q u i r e m e n t s * * 10 2 2 0 . 34 - 1 . 0 0 0 . 2 5 0 . 0 0 0 . 0 6 0 . 0 0 0 . 0 0 - 1 . 0 0 0 . 6 0 - 1 . 0 0 E n v i r o n m e n t a l P r o t e c t i o n Gu i d e l i n e s * 14 22 0 . 1 9 - 1 . 0 0 0 . 24 0 . 0 0 0 . 0 6 0 . 0 0 0 . 0 0 - 1 . OO 0 . 5 9 - 1 . O O 8 . N o n - v o l u n t a r y P l a n n i n g C o s t s * * 9 . S u s t a i n e d Y i e l d C u t C o n t r o l s ( 1 ) 1 0 . A C E P r o v i s i o n s , ( 2 ) , ( 3 ) 16 10 15 22 22 22 0 . 5 5 O . O O 1 . 0 0 •1 . 0 0 0 . 0 0 0 . 0 0 O . 3 6 O . O O 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 1 3 O . OO 1 . OO O . OO O . OO O . OO 0 . 0 0 1 . 0 0 1 . 0 0 o . oo - 1 . oo - 1 . oo 0 . 0 0 0 . 0 0 0 . 0 0 O . 0 0 o . oo o . oo 1 1 . R e f o r e s t a t i o n R e q u i r e m e n t s * 10 22 0 . 1 3 - 1 . 0 0 0 . 3 5 0 . 1 3 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 - 1 . 0 0 - 1 . 0 0 Table D8 continued tt o f tt o f tt o f C h a r a c t e r i s t i c > 0 < 0 a s s i g n e d S p e c t r u m r a t i o s + r a t i o s + 0 r a t i o s = N M e a n S t D e v V a r M i n Max 1 2 . F o r e s t P r o t e c t i o n 12 0 . 1 4 0 . 3 0 0 . 0 9 O . O O 1 . OO S t i p u l a t i o n s * 1 - 1 . 0 0 O . O O 0 . 0 0 - 1 . 0 0 - 1 . 0 0 9 2 2 * M e a n r a t i o e x p e c t e d t o b e 0 . 5 0 , HQ: u E ( , = 0 . 5 0 . * * M e a n r a t i o e x p e c t e d t o b e 0 . 5 0 a n d t h e s a m p l e m e a n s u p p o r t s t h e n u l l h y p o t h e s i s , a = 0 . 0 5 . ( 1 ) F r e e d o m r a t i o o f 1 . O O o c c u r s b e c a u s e n o a t t e n u a t i o n r a t i n g s w e r e c o l l e c t e d o r t h i s c h a r a c t e r i s t i c . ( 2 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . ( 3 ) F r e e d o m r a t i o o f 0 . 0 0 o c c u r s b e c a u s e n o f r e e d o m r a t i n g s w e r e c o l l e c t e d f o r t h i s c h a r a c t e r i s t i c . TABLE D9: FREEDOM RATING SUMMARY STATISTICS OF TREE FARM LICENCES H o f p o s H o f n e g P o l i c y C h a n q e r a t i n q s + r a t i n q s = N M e a n S t D e v V a r M i n Max 1. C o m p l e t e 19 6 . 7 5 3 . 0 9 9 . 5G 0 . 0 0 1 0 . 0 0 C e r t a i n t y o f 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 R e p l a c e m e n t 19 6 . 7 5 3 . 0 9 9 . 5 6 0 . 0 0 1 0 . 0 0 O p p o r t u n i t y * 2 . E l i mi n a t i n g 19 6 . 2 9 3 . 2 7 10 . 7 5 0 . o o 1 0 . 0 0 S t u m p a g e F e e s * 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 O . O O 19 G . 2 9 3 . 2 7 10 . 7 5 0 . 0 0 1 0 . 0 0 3 . C o m p l e t e 19 6 . 0 0 2 . 4 4 5 . 9 4 2 . 0 0 9 . 0 0 R e i m b u r s e m e n t 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 f o r R o a d B u i I d i n g * 19 6 . 0 0 2 . . 4 4 5 . 9 4 2 . 0 0 9 . O O 4 . P e r p e t u a l 19 5 . 9 5 2 . 9 5 8 . 6 9 0 . 0 0 1 0 . 0 0 T e n u r e T e r m s * 0 O . 0 0 O . 0 0 0 . 0 0 0 . . 0 0 O . O O 19 5 . 9 5 2 . 9 5 8 . 6 9 0 . 0 0 1 0 . 0 0 5 . C o m p l e t e 19 5 . 8 3 2 . . 8 5 8 . 1 1 0 . 0 0 1 0 . 0 0 R e i m b u r s e m e n t f o r 0 0 . . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 M a n a g e m e n t 19 5 . . 8 3 2 . . 8 5 8 . 1 1 0 . . 0 0 1 0 . 0 0 E x p e n d i t u r e s * Table D9 continued H o f p o s U o f n e g P o l i c y C h a n g e r a t i n q s + r a t i n g s = N M e a n S t D e v V a r Mi n Max 6 . I m m e d i a t e C a s h 19 5 . . 5 1 3 . 0 9 9 . 5 7 0 . 0 0 1 0 . 0 0 R e i m b u r s e m e n t o f 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 S e c t i o n 8 8 19 5 . . 5 1 3 . 0 9 9 . 5 7 0 . 0 0 1 0 . 0 0 C r e d i t s * , ( 1 ) 7 . E 1 i mi n a t i n g 19 3 . . 2 0 2 . 8 5 8 . 1 4 0 .OO 1 0 . 0 0 P e n a l t i e s F o r 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 C u t t i n g U n d e r 19 3 . . 2 0 2 . 8 5 8 . 14 0 . 0 0 1 0 . 0 0 t h e A A C * 8 . E 1 i m i n a t i n g 19 3 . . 0 5 2 . 4 2 5 . 8 6 0 . 0 0 7 . 5 0 H a r v e s t i n g 0 0 . OO 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 U t i 1 i z a t i o n 19 3 . . 0 5 2 . 4 2 5 . 8 6 0 .OO 7 . 5 0 R e q u i r e m e n t s * 9 . D o u b l i n g 1G 3 . . 6 6 3 . . 4 9 1 2 . 1 6 0 . . 0 0 1 0 . 0 0 A c c u m u l a t e d 3 - 4 . . 3 3 2 . 0 8 4 . 3 3 - 6 . . 0 0 - 2 . 0 0 S e c t i o n 8 8 19 2 . . 3 9 4 . . 4 2 1 9 . 5 7 - 6 . . 0 0 1 0 . 0 0 C r e d i t s * , ( 1 ) 1 0 . E l i m i n a t i o n O f 16 3 . . 4 7 3 . . 3 5 1 1 . 2 5 0 . o o 1 0 . 0 0 S u s t a i n e d Y i e l d 3 - 3 . . 5 0 2 . . 7 8 7 7 5 - 6 . . 5 0 - 1 . o o C u t C o n t r o l s * 19 2 . 3 6 4 . . 1 3 17 . 0 5 - 6 . 5 0 1 0 . 0 0 1 1 . H a 1v i n g 19 2 . 24 2 . 4 8 6 . 1 5 0 . 0 0 7 . 5 0 P e n a 1 t i e s F o r 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 C u t t i n g O v e r 19 2 . 24 2 . . 4 8 6 . 1 5 0 . 0 0 7 . 5 0 t h e A A C * Table D9 continued # o f p o s tt o f n e g P o l i c v C h a n q e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 12 . E l i r u i n a t i n g 18 2 . 2 5 1 . . 9 9 3 . 9 5 0 . . 0 0 5 . 0 0 E n v i r o n m e n t a 1 1 - 2 . 5 0 . . 0 0 0 . 0 0 - 2 . . 5 0 - 2 . 5 0 P r o t e c t i o n 19 2 . 0 0 2 . 22 4 . . 9 2 - 2 . . 5 0 5 . 0 0 Gu i d e l i n e s * 13 . E l i m i n a t i n g 19 1 . 9 2 3 . . 0 4 9 . 2 3 0 .OO 1 0 . 0 0 P r o p e r t y T a x e s 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 .OO 0 . 0 0 F o r C r o w n G r a n t s 19 1 . 9 2 3 . . 0 4 9 . 2 3 0 OO 1 0 . 0 0 w i t h i n T r e e F a r m L i c e n c e s * 14 . E l i m i n a t i n g 19 1 . 6 1 2 . 6 7 7 . 13 0 . 0 0 8 . 0 0 S c h e d u l e A 0 O . O O 0 . . 0 0 0 . 0 0 0 .OO 0 . 0 0 R o y a l t y C h a r g e s * 19 1 . 6 1 2 . . 6 7 7 . 1 3 0 .OO 8 . O O 15 . E l i m i n a t i n g 17 1 . 8 3 2 . 3 0 5 . 27 0 OO 6 . O O L o g E x p o r t 2 - 2 . 7 5 3 18 10 . 13 - 5 . 0 0 - 0 . 5 0 C o n t r o l s * 19 1 . 3 6 2 . . 7 1 7 . 34 - 5 . 0 0 6 . 0 0 1 G . E1 i mi n a t i n g 15 2 . 2 3 2 . 9 9 8 . 9 6 0 . 0 0 1 0 . 0 0 T e n u r e T r a n s f e r 4 - 2 . 1 3 1 . . 9 3 3 . 7 3 - 5 . 0 0 - 1 . 0 0 R e s t r i c t i o n s * 19 1 . 32 3 . 3 0 10 . 9 2 - 5 .OO 1 0 . 0 0 17 . E l i m i n a t i n g 17 1 . 6 5 2 . 6 4 6 . 9 9 0 . . o o 8 . 0 0 N o n - v o l u n t a r y 2 - 1 . 8 8 0 . . 8 8 0 . 7 8 - 2 . 5 0 - 1 . 2 5 P l a n n i n g C o s t s * 19 1 . 2 8 2 . . 74 7 . 4 9 - 2 . 5 0 8 . 0 0 18 . E 1 i mi n a t i n g 17 1 . 1 8 2 . 2 1 4 . 9 0 0 . 0 0 8 . 0 0 F o r e s t P r o t e c t i o n 2 - 2 . 2 5 0 . 3 5 0 . 13 - 2 . 5 0 - 2 . 0 0 S t i p u l a t i o n s 19 0 . 8 2 2 . 3 5 5 . 5 3 - 2 . 5 0 8 . O O Table D9 continued P o l i c y C h a n g e tt o f p o s r a t i n g s tt o f n e g r a t i n g s M e a n S t D e v V a r M i n Max 1 9 . D o u b l i n g t h e AAC 1 1 19 5 . 0 9 - 5 . 2 5 0 . 7 3 2 . 4 3 2 . 3 9 5 . 7 5 5 . 8 9 5 . 7 1 3 3 . 0 1 0 . 0 0 - 8 . 0 0 - 8 . 0 0 8 . 0 0 - 1 . 0 0 8 . 0 0 2 0 . E l i m i n a t i n g R e f o r e s t a t i o n R e q u i r e m e n t s 17 19 0 . 9 1 - 2 . 6 3 O . 54 2 . 22 3 . 3 6 2 . 5 0 4 . 9 4 1 1 . 2 8 6 . 27 0 . 0 0 - 5 . 0 0 - 5 . 0 0 8 . 0 0 - 0 . 2 5 8 . O O 2 1 . E 1 i m i n a t i n g P r o c e s s i n g S t i pu1 a t i o n s 16 19 0 . 6 3 - 4 . 3 3 - 0 . 1 6 2 . 5 0 2 . 0 8 3 . 0 2 6 . 25 4 . 3 3 9 . 1 4 0 . 0 0 - 6 . 0 0 - 6 . 0 0 1 0 . 0 0 - 2 . 0 0 1 0 . 0 0 * P o l i c y c h a n g e s w i t h m e a n r a t i n g s s i g n i f i c a n t l y g r e a t e r t h a n z e r o , a=5%. TABLE D10: ATTENUATION RATING SUMMARY STATISTICS OF TREE FARM LICENCES H o f n e g H o f p o s P o l i c y C h a n g e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 1. H a l v i n g t h e A A C * 18 - 8 . 0 7 1 . 8 4 3 . 38 - 1 0 . 0 0 - 4 . O O 1 2 . 0 0 0 . 0 0 0 . 0 0 2 . 0 0 2 . 0 0 19 - 7 . 54 2 . 9 2 8 . 5 3 - 1 0 . 0 0 2 . 0 0 2 . D o u b l i n g o f 19 - 6 . 9 3 2 . 8 7 8 . 22 - 1 0 . 0 0 0 . 0 0 S t u m p a g e F e e s * 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 O . O O 19 - 6 . 9 3 2 . 8 7 8 . 2 2 - 1 0 . 0 0 0 . 0 0 3 . D o u b l i n g t h e 19 - 6 . 72 2 . 8 3 8 . 0 1 - 1 0 .oo O . O O P r o b a b i 1 i t y o f 0 O .OO 0 . 0 0 0 . 0 0 0 .oo O . O O N o t H a v i n g a 19 - 6 . 72 2 . 8 3 8 . 0 1 - 1 0 . 0 0 0 . 0 0 R e p l a c e m e n t O p p o r t u n i t y * 4 . E 1 i mi n a t i n g 18 - 5 . 8 1 2 . 32 5 . 3 9 - 9 . 0 0 - 1 . 0 0 M a n a g e m e n t 1 5 . 0 0 0 . 0 0 0 . 0 0 5 . 0 0 5 . 0 0 E x p e n d i t u r e 19 - 5 . 2 3 3 . 3 5 1 1 . 24 - 9 . 0 0 5 . O O Re i m b u r s e m e n t s * 5 . I n c r e a s i n g 19 - 5 . 0 0 3 . 2 1 10 . 3 1 - 1 0 . 0 0 0 . 0 0 H a r v e s t i n g 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 U t i 1 i z a t i o n 19 - 5 . . 0 0 3 . . 2 1 10 . 3 1 - 1 0 . 0 0 0 . 0 0 R e q u i r e m e n t s * Table D10 continued tt o f p o s tt o f n e g P o l i c y C h a n g e r a t i n q s + r a t i n q s = N M e a n S t D e v V a r M i n Max 6 . E 1 i m i n a t i o n o f 19 - 4 . 6 6 3 . 8 5 14 . 8 1 - 1 0 . . 0 0 O . O O R o a d C o s t 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 R e i m b u r s e m e n t s * 19 - 4 . 6 6 3 . 8 5 14 . 8 1 - 1 0 . . 0 0 0 . 0 0 7 . C h a n g e F r o m A r e a 17 - 5 . 7 9 3 . 4 2 1 1 . . 7 1 - 1 0 . 0 0 0 . 0 0 t o V o l u m e B a s e d 2 5 . 0 0 O . 0 0 0 . . 0 0 5 . OO 5 . 0 0 T e n u r e * 19 - 4 . 6 6 4 . 6 9 21 . . 0 0 - 1 0 . OO 5 . 0 0 8 . C a n c e 1 1 a t i o n 18 - 4 . 8 5 3 . 7 6 1 4 . . 1 6 - 1 0 . OO O .OO o f C u r r e n t 1 4 . 0 0 0 . 0 0 0 . 0 0 4 . . 0 0 4 . 0 0 A c c u m u l a t e d 19 - 4 . 3 8 4 . 18 17 . 4 9 - 1 0 . . 0 0 4 . 0 0 S e c t i o n 8 8 C r e d i t s * , ( 1 ) No T e n u r e 19 - 4 . 0 0 2 . 9 6 8 . 7 7 - 1 0 . 0 0 O . O O T r a n s f e r s 0 0 . 0 0 O . O O 0 . 0 0 O . O O O . O O A l l o w e d * 19 - 4 . 0 0 2 . 9 6 8 . 7 7 - 1 0 . 0 0 O . O O 1 0 . E l i m i n a t i o n 19 - 3 . 9 7 3 . 0 1 9 . 0 4 - 9 . OO 0 . OO o f A C E 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . OO P r o v i s i o n s * , ( 2 ) 19 - 3 . 9 7 3 . 0 1 9 . 0 4 - 9 . . 0 0 0 . . 0 0 1 1 . H a l v i n g T e n u r e 18 - 4 . 1 8 2 . 2 0 4 . 8 2 - 8 . . 5 0 0 . . 0 0 T e r m s * 1 2 . 5 0 . 0 0 0 . 0 0 2 . . 5 0 2 . . 5 0 19 - 3 . 8 3 2 . 6 3 6 . 9 0 - 8 . . 5 0 2 . . 5 0 1 2 . I n c r e a s i n g 19 - 3 . . 5 0 1 . 8 0 3 . . 22 - 6 .OO 0 . . 0 0 E n v i r o n m e n t a l O 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 P r o t e c t i o n 19 - 3 . . 5 0 1 . 8 0 3 . . 22 - 6 . 0 0 0 . . 0 0 G u i d e l i n e s * ro O rO Table D10 continued H o f p o s tt o f n e g P o l i c y C h a n g e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 13 . I n c r e a s i n g 18 - 3 . 0 4 2 . . 5 6 6 . . 5 5 - 8 . .OO O . O O R e f o r e s t a t i o n 1 2 . 5 O. . OO 0 . . 0 0 2 . . 5 0 2 . 5 0 R e q u i r e m e n t s * 19 - 2 . 7 5 2 . 7 9 7 . . 8 0 - 8 . . 0 0 2 . 5 0 14 . D o u b l i n g 19 - 2 . 4 7 2 . . 6 8 7 . . 2 1 - 1 0 . . 0 0 0 . 0 0 P e n a l t i e s F o r 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . . 0 0 0 . 0 0 C u t t i n g O v e r 19 - 2 . 4 7 2 . 6 8 7 . . 2 1 - 1 0 . . 0 0 0 . 0 0 t h e A A C * 15 . D o u b l i n g 19 - 2 . 32 3 . 3 6 1 1 . 2 6 - 1 0 . OO O . O O P r o p e r t y T a x e s 0 O . O O O . 0 0 0 . 0 0 0 . . 0 0 O . O O o n C r o w n G r a n t s 19 - 2 . 32 3 . 3 6 1 1 . 2 6 - 1 0 . . 0 0 0 . 0 0 W i t h i n T r e e F a r m L i c e n c e s * 16 . D o u b l i n g 18 - 2 . 6 1 2 . 6 0 6 . 7 8 - 8 . . 5 0 O . O O P e n a 1 t i e s F o r 1 5 . 0 0 0 .OO 0 . 0 0 - 5 . . 0 0 5 . 0 0 C u t t i n g U n d e r 19 - 2 . 2 1 3 . 0 7 9 . 4 5 - 8 . 5 0 5 . O O t h e A A C * 17 . D o u b l i n g 19 - 2 . 1 7 3 . 2 0 10 . 22 - 1 0 . . 0 0 0 . 0 0 S c h e d u l e A 0 0 . 0 0 0 . . 0 0 0 . . 0 0 0 . . 0 0 0 . 0 0 R o y a l t y C h a r g e s * 19 - 2 . 1 7 3 . 2 0 10 . 22 - 1 0 . . 0 0 0 . 0 0 18 . S e c t i o n 8 8 16 - 3 . 7 5 2 . 9 0 8 . 4 3 - 8 .OO 0 . 0 0 C r e d i t C a s h 3' 6 . 25 1 . 14 1 . 3 1 5 . 2 5 7 . 5 0 R e i m b u r s e m e n t s 19 - 2 . 1 7 4 . 6 1 21 . 2 1 - 8 OO 7 . 5 0 A f t e r 10 Y e a r s * , ( 1 ) K3 O Table D10 continued ti o f p o s ti o f n e g P o l i c y C h a n q e r a t i n g s + r a t i n g s = N M e a n S t D e v V a r M i n Max 1 9 . I n c r e a s i n g 18 - 2 . 0 6 2 . 22 4 . 9 1 - 6 . 5 0 0 . 0 0 N o n - v o l u n t a r y 1 5 . 0 0 0 . 0 0 0 . 0 0 5 .OO 5 . O O P l a n n i n g C o s t s * 19 - 1 . 6 8 2 6 9 7 . 26 - 6 . 5 0 5 . O O 2 0 . I n c r e a s i n g 18 - 1 . 6 0 2 . . 3 0 5 . 3 0 - 8 . 0 0 0 . 0 0 F o r e s t P r o t e c t i o n 1 5 . 0 0 0 . . 0 0 0 . 0 0 5 . 0 0 5 . 0 0 S t i p u l a t i o n s * 19 - 1 . 2 5 2 . 7 0 7 . 3 0 - 8 . 0 0 5 . 0 0 2 1 . E l i m i n a t i o n o f 18 - 1 . 6 4 2 . 52 6 . 3 5 - 7 . 0 0 0 . 0 0 L o g E x p o r t s 1 7 . 0 0 0 . .OO 0 . 0 0 7 . 0 0 7 . OO 19 - 1 . 18 3 . 15 9 . 9 2 - 7 . 0 0 7 . OO 2 2 . A p p l y i n g 17 - 1 . 9 1 1 . . 9 7 3 . . 8 8 - 6 OO 0 . 0 0 S c h e d u l e A 2 6 . 0 0 5 . 6 5 32 . 0 0 2 . 0 0 1 0 . 0 0 R o y a l t y C h a r g e s 19 - 1 . 0 8 3 . 3 8 1 1 . 4 5 - 6 . 0 0 1 0 . 0 0 t o C r o w n G r a n t s 2 3 . A p p l y i n g C r o w n 19 - 1 . 0 4 1 . . 9 6 3 . 8 4 - 5 . 0 0 O . O O G r a n t P r o p e r t y 0 O . 0 0 0 . . 0 0 0 . . 0 0 0 .OO O . O O T a x e s t o T i m b e r 19 - 1 . 0 4 1 . . 9 6 3 . . 8 4 - 5 . 0 0 0 . 0 0 L i c e n c e s w i t h i n T r e e F a r m L i c e n c e s * * P o l i c y c h a n g e s w i t h m e a n r a t i n g s s i g n i f i c a n t l y l e s s t h a n z e r o , a = 5 % ( 1 ) S e c t i o n 8 8 o f t h e B r i t i s h C o l u m b i a F o r e s t s A c t a l l o w s a p p r o v e d e x p e n d i t u r e s o n f o r e s t m a n a g e m e n t t o b e s u b t r a c t e d f r o m s t u m p a g e f e e s . ( 2 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . ho o TABLE D11: RELATIVE IMPORTANCE NUMBER SUMMARY STATISTICS OF TREE FARM LICENCES C h a r a c t e r i s t i c S p e c t r u m M e a n S t D e v V a r M i n Max 1 . C e r t a i n t y o f R e p l a c e m e n t O p p o r t u n i t y 2 . S t u m p a g e F e e s * 3 . M a n a g e m e n t E x p e n d i t u r e R e i m b u r s e m e n t s 4 . A n n u a l A l l o w a b l e C u t s * 5 . R o a d B u i l d i n g R e i m b u r s e m e n t s * 6 . T e n u r e T e r m s * 19 19 19 19 19 19 1 3 . 4 7 1 3 . 22 1 1 . 3 3 1 1 . 1 7 1 0 . 6 6 9 . 9 0 4 . 4 4 5 . 6 7 3 . 9 5 3 . 72 5 . 72 4 . 2 8 1 9 . 6 9 32 . 15 1 5 . 5 8 13 . 8 6 3 2 . 7 2 18 . 3 0 4 . 0 0 O . O O 5 . 5 0 5 . 0 0 2 . 0 0 0 . 0 0 2 0 . 0 0 2 0 . OO 1 7 . 0 0 17 . 0 0 18 . 0 0 18 . 0 0 7 . P e r i o d B e f o r e S e c t i o n 8 8 R e i m b u r s e m e n t s ( 1 ) 8 . H a r v e s t i n g U t i l i z a t i o n R e q u i r e m e n t s 9 . A c c u m u l a t e d S e c t i o n 8 8 C r e d i t s ( 1 ) * 19 19 19 8 . 6 7 3 . 8 4 8 . 0 5 4 . 8 9 7 . 8 8 6 . 3 6 1 4 . 7 6 2 3 . 9 1 4 0 . 4 3 2 . 0 0 0 . 0 0 0 . 0 0 16 . O O 17 . 5 0 2 0 . 0 0 Table D11 continued C h a r a c t e r i s t i c S p e c t r u m M e a n S t D e v V a r M i n Max 1 0 . T e n u r e T r a n s f e r a b i l i t y 1 1 . E n v i r o n m e n t a l P r o t e c t i o n G u i d e l i n e s 1 2 . A l l o t m e n t T y p e 1 3 . P e n a l t i e s F o r U n d e r - c u t t i n g * 1 4 . P e n a l t i e s F o r O v e r - c u t t i n g * 1 5 . P r o p e r t y T a x e s f o r T r e e F a r m L i c e n c e C r o w n G r a n t s 1 6 . R e f o r e s t a t i o n R e q u i r e m e n t s * 1 7 . E l i m i n a t i n g A C E P r o v i s i o n s ( 2 ) 1 8 . N o n - V o l u n t a r y P l a n n i n g C o s t s * 1 9 . S c h e d u l e A R o y a l t y C h a r g e s * 2 0 . S u s t a i n e d Y i e l d C u t C o n t r o l s 2 1 . L o g E x p o r t C o n t r o l s 2 2 . F o r e s t P r o t e c t i o n S t i p u l a t i o n s * 2 3 . A d d i n g R o y a l t y F e e s t o C r o w n G r a n t s 19 19 19 19 19 19 19 19 19 19 19 19 19 19 5 . 8 0 5 . 7 6 5 . 7 1 4 . 24 4 . 0 9 3 . 8 8 3 . 7 8 3 . 4 7 3 . 0 7 2 . 34 4 . 6 4 3 . 0 5 3 . 24 5 . 6 7 4 . 0 3 4 . 7 1 4 . 7 0 6 . 3 0 4 . 0 1 3 . 9 7 3 . 0 1 4 . 2 9 5 . 8 0 3 . 2 0 3 . 3 0 3 . 9 0 3 . 7 5 2 . 6 2 21 . 5 7 9 . 2 9 1 0 . 4 7 16 . 2 6 22 . 0 6 3 9 . 7 3 1 6 . 1 2 9 . 0 4 18 . 42 3 3 . 5 9 10 . 24 1 4 . 9 0 1 4 . 0 4 6 . 8 9 1 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 O . O O O . OO 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 2 0 . 0 0 1 1 . 0 0 1 0 . 0 0 14 . 0 0 17 . 5 0 2 0 . 0 0 0 . O O . 1 6 . 0 0 9 . 0 0 1 4 . 0 0 18 . 0 0 1 0 . 0 0 12 . 0 0 1 6 . 0 0 1 0 . 0 0 Table D11 continued C h a r a c t e r i s t i c S p e c t r u m NI M e a n S t D e v V a r M i n Max 2 5 . P r o c e s s i n g S t i p u l a t i o n s * 19 1 . 2 1 2 . 7 6 7 . 6 2 0 . 0 0 1 0 . 0 0 2 6 . A d d i n g P r o p e r t y T a x e s t o T i m b e r L i c e n c e s w i t h i n T r e e F a r m L i c e n c e s * 19 1 . 0 4 1 . 9 6 3 . 8 4 O . O O 5 . 0 0 * S p e c t r a w i t h m e a n v a l u e s s i g n i f i c a n t l y g r e a t e r t h a n z e r o a t t h e f i v e p e r c e n t l e v e l o f s i g n i f i c a n c e . ( 1 ) S e c t i o n 8 8 o f t h e B r i t i s h C o l u m b i a F o r e s t s A c t a l l o w s a p p r o v e d e x p e n d i t u r e s o n f o r e s t m a n a g e m e n t t o b e s u b t r a c t e d f r o m s t u m p a g e f e e s . ( 2 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . TABLE D12: FREEDOM RATIO SUMMARY STATISTICS OF TREE FARM LICENCES C h a r a c t e r i s t i c S p e c t r u m  t) o f >_ O r a t i o s # o f < O r a t i o s H o f a s s i g n e d O r a t i o s M e a n S t D e v V a r M i n M a x 1 . C e r t a i n t y o f R e p l a c e m e n t O p p o r t u n i t y * * 19 19 0 . 4 9 0 . 0 0 0 . 2 3 0 . 0 0 0 . 0 5 0 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 2 . S t u m p a g e F e e s * * 18 19 0 . 4 6 O . O O 0 . 1 4 O . O O 0 . 0 2 0 . 0 0 0 . 0 0 0 . 0 0 0 . 7 5 0 . 0 0 3 . M a n a g e m e n t E x p e n d i t u r e R e i m b u r s e m e n t s 18 19 0 . 4 7 0 . 0 0 0 . 2 0 0 . 0 0 0 . 0 4 0 . 0 0 0 . 0 0 0 . 0 0 0 . 8 9 0 . 0 0 4 . A n n u a l A l 1 o w a b l e C u t s 11 19 0 . 3 6 - 0 . 7 8 0 . 1 4 O . O O 0 . 0 2 0 . 0 0 0 . 0 0 - O . 7 8 O . 5 0 - O . 7 8 Table 012 continued C h a r a c t e r i s t i c S p e c t r u m  H Of > 0 r a t i o s H o f < 0 r a t i o s + it o f a s s i g n e d 0 r a t i o s M e a n S t D e v V a r M i n Max 5 . R o a d B u i 1 d i n g R e i m b u r s e m e n t s 6 . T e n u r e T e r m s 19 17 19 19 0 . 6 5 0 . 0 0 0 . 5 7 0 . 0 0 0 . 2 6 0 . 0 0 0 . 1 2 0 . 0 0 0 . 0 7 0 . 0 0 0 . 0 2 O . O O 0 . 3 3 0 . 0 0 O . 3 3 O . O O 1 . 0 0 0 . 0 0 0 . 8 0 0 . 0 0 P e r i o d B e f o r e S e c t i o n 8 8 R e i m b u r s e m e n t s ( 1 ) 16 19 0 . 5 5 0 . 0 0 0 . 33 0 . 0 0 0 . 1 1 0 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 H a r v e s t i n g U t i1 i z a t i o n R e q u i r e m e n t s * 18 19 0 . 34 0 . 0 0 0 . 2 6 0 . 0 0 0 . 0 7 0 . 0 0 O . O O 0 . 0 0 1 . 0 0 0 . 0 0 A c c u m u l a t e d S e c t i o n 8 8 C r e d i t s * * 1 1 19 0 . 4 6 0 . 0 0 0 . 1 9 0 . 0 0 0 . 0 3 0 . 0 0 0 . 1 1 0 . 0 0 0 . 7 7 0 . 0 0 1 0 . T e n u r e T r a n s f e r a b i 1 i t y 15 19 0 . 2 5 - 1 . 0 0 0 . 2 8 0 . 0 0 0 . 0 8 O . O O O . O O - 1 . O O 0 . 7 1 - 1 . O O Table D12 continued C h a r a c t e r i s t i c S p e c t r u m  tt o f > 0 r a t i o s tt o f tt o f < O a s s i g n e d r a t i o s + O r a t i o s M e a n S t D e v V a r M i n Max 1 1 . E n v i r o n m e n t a l P r o t e c t i o n G u i d e l i n e s * * 17 19 0 . 3 1 - 1 . 0 0 0 . 2 4 0 . 0 6 0 . 0 0 0 . 6 7 0 . 0 0 0 . 0 0 - 1 . 0 0 - 1 . 0 0 1 2 . A l l o t m e n t T y p e ( 2 ) 1 3 . P e n a l t i e s F o r U n d e r - c u t t i n g * * 14 . P e n a l t i e s F o r O v e r - c u t t i n g * * 15 16 15 19 19 19 0 . 0 0 0 . 0 0 0 . 5 7 0 . 0 0 0 . 4 5 O . O O O . O O 0 . OO 0 . OO O . OO O . O O O . O O O . O O O . O O 0 . 2 7 0 . 0 0 0 . 2 4 O . O O 0 . 0 7 0 . 0 0 0 . 0 6 0 . 0 0 0 . 0 0 0 . 0 0 O . O O O . O O 1 . 0 0 0 . 0 0 0 . 8 3 O . O O 1 5 . C r o w n G r a n t P r o p e r t y T a x e s * * 10 19 0 . 4 5 0 . 0 0 0 . 1 1 0 . 0 0 0 . 0 1 0 . 0 0 0 . 2 0 0 . 0 0 O . 5 0 0 . 0 0 1 6 . R e f o r e s t a t i o n R e q u i r e m e n t s * 14 19 0 . 1 5 - 0 . 6 7 0 . 3 0 O . O O 0 . 0 9 0 . 0 0 0 . 0 0 - 0 . 6 7 1 . 0 0 - O . 6 7 Table D12 continued C h a r a c t e r i s t i c S p e c t r u m  tf o f > O r a t i o s tt o f tt o f < O a s s i g n e d r a t i o s + O r a t i o s M e a n S t D e v V a r M i n Max 17 . E l i m i n a t i n g A C E P r o v i s i o n s , ( 2 ) , ( 3 ) 14 19 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 1 8 . N o n - v o l u n t a r y P 1 a n n i n g C o s t s * * 13 19 O . 37 - 0 . 6 7 0 . 34 0 . 4 7 0 . 1 1 0 . 22 O . O O - 1 . 0 0 1 . 0 0 - 0 . 3 3 1 9 . S c h e d u l e A R o y a l t y C h a r g e s * * 12 19 0 . 4 0 0 . 0 0 0 . 1 1 0 . 0 0 0 . 0 1 0 . 0 0 0 . 2 0 0 . 0 0 0 . 5 0 0 . 0 0 2 0 . S u s t a i n e d Y i e l d C u t C o n t r o l s ( 4 ) 2 1 . L o g E x p o r t C o n t r o l s 2 2 . F o r e s t P r o t e c t i o n S t i p u l a t i o n s * * 1 1 10 12 19 19 19 1 . 0 0 •1 . O O 0 . 6 0 - 1 . 0 0 0 . 4 0 - 0 . 6 7 0 . 0 0 O . O O 0 . 4 0 0 . 0 0 0 . 4 5 0 . 4 7 0 . 0 0 O . O O 0 . 1 6 0 . 0 0 0 . 2 0 0 . 22 1 . O O 1 . O O O . O O - 1 . 0 0 0 . 0 0 - 1 1 . 0 0 1 . oo 1 .oo •1 . 0 0 1 . 0 0 - O . 3 3 2 3 . A d d i n g C r o w n G r a n t R o y a l t y F e e s ( 2 ) 1 1 19 0 . 0 0 0 . 0 0 O . O O 0 . 0 0 0 . 0 0 0 . 0 0 O . O O O . O O O . O O 0 . 0 0 Table D12 continued ft o f U o f It o f C h a r a c t e r i s t i c _> O < O a s s i g n e d S p e c t r u m r a t i o s + r a t i o s + 0 r a t i o s = N M e a n S t D e v V a r M i n Max 2 4 . P r o c e s s i n g 1 1 . O O 0 . 0 0 0 . 0 0 1 . 0 0 1 . 0 0 S t i p u l a t i o n s ( 4 ) 3 - 1 . 0 0 0 . 0 0 0 . 0 0 - 1 . 0 0 - 1 . 0 0 15 19 2 5 . A d d i n g 5 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 T i m b e r L i c e n c e 0 O . O O 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 P r o p e r t y T a x e s ( 2 ) 14 19 * M e a n r a t i o e x p e c t e d t o b e 0 . 5 0 , H Q : U^Q= 0 . 5 0 . * * M e a n r a t i o e x p e c t e d t o b e 0 . 5 0 a n d t h e s a m p l e m e a n s u p p o r t s t h e n u l l h y p o t h e s i s , a=5%. ( 1 ) S e c t i o n 8 8 o f t h e B r i t i s h C o l u m b i a F o r e s t s A c t a l l o w s a p p r o v e d e x p e n d i t u r e s o n f o r e s t m a n a g e m e n t t o b e s u b t r a c t e d f r o m s t u m p a g e f e e s . ( 2 ) F r e e d o m r a t i o o f O . O O o c c u r s b e c a u s e n o f r e e d o m r a t i n g s f o r t h i s c h a r a c t e r i s t i c w e r e c o l l e c t e d ( 3 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . ( 4 ) F r e e d o m r a t i o o f 1 . 0 0 o c c u r s b e c a u s e n o a t t e n u a t i o n r a t i n g s f o r t h i s c h a r a c t e r i s t i c w e r e c o l l e c t e d . 213 APPENDIX E: SUMMARY STATISTICS OF SECURITY PERCEPTION NUMBERS BY TENURE TYPE Table E l : Absolute Value Security Perception Number Summary S t a t i s t i c s of Crown Grants 214 Table E2: Security Perception Number Summary S t a t i s t i c s of Crown Grants 215 Table E3: Absolute Value Security Perception Number Summary S t a t i s t i c s of Taxation Tree Farms 216 Table E4: Security Perception Number Summary S t a t i s t i c s of Taxation Tree Farms 219 Table E5: Absolute Value Security Perception Number Summary S t a t i s t i c s of Tree Farm Licences 222 Table E6: Security Perception Number Summary S t a t i s t i c s of Tree Farm Licences 228 TABLE E1: ABSOLUTE VALUE SECURITY PERCEPTION NUMBER SUMMARY STATISTICS OF CROWN GRANTS C h a r a c t e r i s t i c ti o f ti o f ti o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 1 . P r o p e r t y T a x e s * 14 6 . 0 3 3 . 3 3 1 1 . 0 1 1 . 0 0 1 0 . 0 0 2 4 . 5 0 3 . 54 12 . 5 0 2 .oo 7 . 0 0 4 0 . 0 0 0 . 0 0 0 . 0 0 O .oo 0 . 0 0 2 0 4 . 6 7 3 . 7 7 14 . 2 1 O .oo 1 0 . 0 0 2 . E n v i r o n m e n t a l 13 3 . 0 0 1 . 8 8 3 . 54 1 .oo 6 . 5 P r o t e c t i o n 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 G u i d e l i n e s * 7 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 2 0 1 . 9 5 2 . 10 4 . 3 9 0 . 0 0 6 . 5 3 . L o g E x p o r t 7 4 . 2 1 3 . 9 4 15 . 5 1 0 . 0 0 1 0 . 0 0 C o n t r o l s * 4 2 .OO 3 . 37 1 1 . 3 3 O .oo 7 . O O 9 O . OO 0 .OO 0 .OO O .oo O . O O 2 0 1 . . 8 8 3 . 22 10 . 3 9 O . oo 1 0 . OO 4 . F o r e s t P r o t e c t i o n 8 3 . . 2 5 1 . 8 5 3 . 34 1 . 0 0 6 . 0 0 S t i p u l a t i o n s * 1 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 1 1 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 2 0 1 . . 3 0 1 . 9 8 3 . 9 3 0 . 0 0 6 . 0 0 * M e a n r a t i n g s s i g n i f i c a n t l y d i f f e r e n t f r o m z e r o , a=5%. I—' 4^ TABLE E2: SECURITY PERCEPTION NUMBER SUMMARY STATISTICS OF CROWN GRANTS C h a r a c t e r i s t i c # o f H o f # o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n M a x 1 . P r o p e r t y T a x e s * 14 - 6 0 3 3 3 3 1 1 01 - 1 0 . 0 0 - 1 . 0 0 2 4 5 0 3 54 12 5 0 2 . O O 7 . 0 0 4 O OO O OO 0 0 0 O . O O O . O O 2 0 - 3 7 8 4 7 1 22 22 - 1 0 . 0 0 7 . O O 2 . E n v i r o n m e n t a l 13 - 3 0 0 1 8 8 3 54 - 6 . 5 - 1 . O O P r o t e c t i o n 0 0 0 0 0 0 0 0 0 0 0 . 0 0 0 . 0 0 G u i d e l i n e s * 7 0 OO O 0 0 0 0 0 0 . 0 0 0 . 0 0 2 0 - 1 9 5 2 10 4 3 9 - 6 . 5 0 . 0 0 3 . L o g E x p o r t 7 0 8 6 5 9 5 3 5 41 - 7 . 0 0 1 0 . 0 0 C o n t r o l s 4 2 0 0 3 3 7 1 1 33 O . O O 7 . 0 0 9 O 0 0 0 OO O OO O . O O O . O O 2 0 O 7 0 3 6 8 13 5 7 - 7 . 0 0 1 0 . 0 0 4 . F o r e s t P r o t e c t i o n 8 - 1 0 0 3 7 9 13 3 6 - 6 . 0 0 6 . 0 0 S t i p u l a t i o n s 1 0 0 0 0 0 0 0 0 0 0 . 0 0 0 . 0 0 1 1 0 0 0 0 0 0 0 0 0 0 . 0 0 0 . 0 0 2 0 - o 4 0 2 3 5 5 54 - 6 . 0 0 6 . 0 0 * M e a n r a t i n g s s i g n i f i c a n t l y d i f f e r e n t f r o m z e r o , a=5%. NO i—• TABLE E3: ABSOLUTE VALUE SECURITY PERCEPTION NUMBER SUMMARY STATISTICS OF TAXATION TREE FARMS C h a r a c t e r i s t i c t) o f tt o f H o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n q e s = N M e a n S t D e v V a r M i n Max 1 . P r o p e r t y T a x e s * 12 7 .63 2 .99 8 .96 1 .00 10.00 10 5 .95 2 .92 8 .51 3 .00 10.00 0 0 .00 0 .00 ' 0 .00 O .00 0.00 22 6 . 86 3 .01 9 .07 1 .oo 10.00 2. A n n u a l 10 5 .03 2 .39 5 .70 0 .oo 8 . O O A 1 1 o w a b l e 2 4 . 25 6 .01 36 . 13 0 .00 8 . 50 C u t * 10 0 . O O 0 .00 0. .00 0 .00 0.00 22 2 . 67 3 . 23 10 .44 0 .00 8 . 50 3. P e n a l t i e s f o r 2 7 .87 2 .65 7 .03 6 .00 9 . 75 O v e r - c u t t i n g * 9 3 . 33 3 .50 12 . 25 O .00 10.00 1 1 0 OO 0 .00 0 .OO O oo O . O O 22 2 .08 3 .34 1 1 . 14 0 . oo 10.00 4. L o g E x p o r t 2 4 . . 50 6 . 36 40. 5 0 .00 9 .00 C o n t r o l s * 6 6 .04 2 .38 5 .66 2 .00 8.00 14 0. OO 0 .00 0 .00 0 .00 0.00 22 2 . .06 3 . 35 1 1 . . 20 0. .00 9 . O O Table E3 continued C h a r a c t e r i s t i c tf o f tt o f ff o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s N M e a n S t D e v V a r Mi n Max 5 . E n v i r o n m e n t a l 12 2 . . 2 3 2. . 2 0 4 . .86 0 . 0 0 7 . 5 0 P r o t e c t i o n 2 6 . . 38 3 . . 36 1 1 . . 28 4 . o o 8 . 7 5 Gu i d e l i n e s * 8 O . 00 O. 0 0 0 . OO 0 . . 0 0 O.OO 22 1 . . 8 0 2 . 5 3 6 . .41 O . 0 0 8 . 75 6 . S u s t a i n e d Y i e l d 0 0 . . 00 O. . 00 0 . 0 0 0 . 0 0 O.OO C u t C o n t r o l s * , ( 1 ) 10 3 . 28 3 .07 9. 4 0 0 o o 8 . 0 0 12 0 . .OO O. . 00 0 . . 00 0 . 0 0 0 . 0 0 22 1 . .49 2 . .61 6 . 81 0 . . 0 0 8 . 0 0 7 . U n d e r - c u t t i n g 2 3 . 5 0 3 . 54 12 . 5 0 1 . . 0 0 6 . 0 0 P e n a l t i e s * 6 3 . .63 4 . .06 16 . .44 0 . . 0 0 1 0 . 0 0 14 0 . OO O. OO O. .00 o . . o o O.OO 22 1 . .31 2 . . 76 7 . 64 o . o o 1 0 . 0 0 8 . N o n - v o l u n t a r y 7 2 . . 2 5 1 . .87 3 . 52 0 . . 0 0 6 . 0 0 P l a n n i n g C o s t s * 3 2 . 33 0 . .58 0 . 33 2 . . 0 0 3 . 0 0 12 0 . . 00 0 . . 00 0 . 0 0 0 . . 0 0 0 . 0 0 22 1 . .03 1. .54 2 . .38 0 . . 0 0 6 . 0 0 9 . F o r e s t P r o t e c t i o n 6 2 . .08 2 . .42 5 . .84 0 . o o 5 . 5 0 S t i p u l a t i o n s * 2 2 . 6 3 3 .71 13 . 78 o . o o 5 . 2 5 14 0 . 0 0 0 . OO 0 . . 00 0 . . o o O.OO 22 O. .81 1 . . 80 3 . 26 o . . 0 0 5 . 5 0 10 . H a r v e s t i n g 9 1 . 78 2 . 49 6 . 19 0 . 0 0 6 . 0 0 U t i 1 i z a t i o n 1 0 . . 5 0 0 . . 00 0 . .00 0 . . 5 0 0 . 5 0 * R e q u i r e m e n t s 12 0 . . 0 0 0 . . 00 0 . 0 0 0 . . 0 0 0 . 0 0 22 0 . 75 1 . .77 3 . 14 0 . o o 6 . 0 0 Table E3 continued C h a r a c t e r i s t i c t) o f tt o f ft o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 1 1 . A C E P r o v i s i o n s 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 ( D , ( 2 ) 5 2 . . 5 0 2 . 3 1 5 . 34 0 . . 0 0 4 . 7 5 17 0 . . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 22 0 . 5 7 1 . . 4 7 2 . 17 0 . 0 0 4 . 7 5 1 2 . R e f o r e s t a t i o n 10 O . . 7 3 1 . 18 1 . 4 0 O . .OO 3 . O O R e q u i r e m e n t s 0 0 . 0 0 0 . . 0 0 0 . O O 0 . . 0 0 O . O O 12 0 . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 2 2 0 . 3 3 0 . . 8 6 0 . 7 3 0 . . 0 0 3 . 0 0 * C h a r a c t e r i s t i c s p e c t r a w i t h m e a n r a t i n g s s i g n i f i c a n t 1y g r e a t e r t h a n z e r o , a=5%. ( 1 ) H y p o t h e t i c a l c h a n g e s p r o p o s i n g i n c r e a s e s o f r e s t r i c t i o n s a l o n g t h i s s p e c t r u m w e r e n o t g i v e n a s a n o p t i o n t o t h e h o l d e r b e c a u s e h o l d e r s w e r e t h o u g h t t o a l r e a d y b e a t t h e s p e c t r u m e x t r e m e . ( 2 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . TABLE E4: SECURITY PERCEPTION NUMBER SUMMARY STATISTICS OF TAXATION TREE FARMS C h a r a c t e r i s t i c S p e c t r u m  # o f i n c r e a s e s ft o f d e c r e a s e s U o f n o c h a n g e s = N M e a n S t D e v V a r M i n Max 1 A n n u a 1 A l 1 o w a b l e Cut* 10 10 2 2 5 . 0 3 2 . 3 9 5 . 7 0 O . O O 8 . 0 0 4 . 2 5 G . 0 1 3 6 . 13 - 8 . 5 0 OO 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 1 . 9 0 3 . 7 6 14 . 14 - 8 . 5 0 8 . 0 0 2 . P e n a l t i e s f o r 2 1 . . 8 8 1 1 . 14 124 . . 0 3 - 6 . 0 0 O v e r - c u t t i n g 9 3 . . 3 3 3 . 5 0 12 . . 2 5 O .oo 1 1 0 OO 0 . 0 0 0 . 0 0 0 .oo 22 1 . 5 3 3 . 6 3 13 . . 2 0 - 6 .oo 3 . S u s t a i n e d Y i e l d 0 0 . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 C u t C o n t r o l s * , (1 ) 10 3 . 2 8 3 . 0 7 9 . . 4 0 0 . 0 0 12 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 22 1 . . 5 0 2 , . 6 1 6 . . 8 1 0 . . 0 0 4 . P r o p e r t y T a x e s 12 - 7 . . 6 3 2 . 9 9 8 . . 9 6 - 10 .oo 10 5 . 9 5 2 . . 9 2 8 . . 5 1 3 . . oo 0 0 . OO 0 . . 0 0 0 . 0 0 0 . oo 22 - 1 . 4 5 7 . . 5 0 5 6 . 21 - 1 0 . 0 0 9 . 7 5 1 0 . 0 0 O . O 1 0 . 0 0 0 . 0 0 8 . 0 0 0 . 0 8 . 0 - 1 . 0 0 1 0 . 0 O . O 1 0 . 0 0 Table E4 continued C h a r a c t e r i s t i c tt o f tt o f tt o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 5. U n d e r - c u t t i n g 2 -3 .  50 3 . 54 12 . . 50 -6 . OO - 1 . OO P e n a 1 1 i e s 6 3 .63 4 .06 16 .44 0. .00 10.00 14 0. .00 0. .00 0 .00 0. .00 0 .00 22 0. .67 2 . .99 8 .96 -6 . .00 10.00 6. E n v i r o n m e n t a l 12 -2 . 23 2 . . 20 4 . 86 -7 . . 50 O.OO P r o t e c t i o n 2 6 . 38 3 . 36 1 1 . 28 4 . OO 8 . 75 Gu i d e l i n e s 8 0 .OO o OO 0 .00 0 .00 0 .00 22 - 0 .64 3 .06 9 . 37 - 7 . . 50 8 . 75 7. A C E P r o v i s i o n s 0 0. .00 O .00 0 .00 0 .00 0 .00 ( 1 ) , (2) 5 2 .50 2 .31 5 . 34 0. .00 4 . 75 17 0. .00 O. .00 0. .00 0. .00 0 . 0 0 22 O. . 57 1 .47 2 . . 17 0. OO 4 . 75 8. H a r v e s t i n g 9 - 1 . . 33 2 . . 78 7 . . 75 -6 . OO 2 .OO U t i 1 i z a t i o n 1 0. .50 0. .00 0. .00 0. 50 0. 50 R e q u i r e m e n t s 12 0 .00 0 00 0 .00 0. .00 0 . 0 0 22 - 0 . . 52 1 . .85 3 . 44 -6 . .00 2.00 9. N o n - v o l u n t a r y 7 0. . 18 3 . 06 9 . 39 -2 . 5 6 .00 P l a n n i n g C o s t s 3 2 . 33 0 . 58 0 . 33 2 . OO 3 .OO 12 0. OO O. OO O .00 0. OO 0 .00 22 O. . 38 1 . .83 3 . 36 -2 . 50 6 .OO 10. F o r e s t P r o t e c t i o n 6 -2 . .08 2 . .42 5 . 84 -5 . 50 O.OO S t i p u l a t i o n s 2 2 . .63 3 . 71 13 . . 78 0. 00 5 . 25 14 0. .00 0 .00 0. .00 0. 00 0 .00 22 - 0 . . 33 1 .96 3 . 83 -5 . 50 5 . 25 Table E4 continued C h a r a c t e r i s t i c H o f H o f H o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s N M e a n S t D e v V a r M i n Max 11. R e f o r e s t a t i o n 10 -o .43 1 .33 1 . 78 -3 . O O 1 .00 R e q u i r e m e n t s O O. .oo o oo 0.00 O . O O O . O O 12 0 .oo 0 .00 0.00 0.00 0.00 22 -0. . 19 0 .90 0.81 -3.0 1 .00 12. L o g E x p o r t 2 -4 . .50 6 . 36 40.5 -9 .00 0.00 C o n t r o l s 6 1 . . 54 6 . 83 46 . 6 1 -8 . O O 8 . O O 14 O. OO o .00 O . O O O . O O O .OO 22 0. .01 3 . 95 15.63 -9 . O O 8.00 * C h a r a c t e r i s t i c s p e c t r a w i t h m e a n r a t i n g s s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o , a=5%. (1) H y p o t h e t i c a l c h a n g e s p r o p o s i n g i n c r e a s e s o f r e s t r i c t i o n s a l o n g t h i s s p e c t r u m w e r e n o t g i v e n a s a n o p t i o n t o t h e h o l d e r b e c a u s e h o l d e r s w e r e t h o u g h t t o a l r e a d y b e a t t h e s p e c t r u m e x t r e m e . (2) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . TABLE E5: ABSOLUTE VALUE SECURITY PERCEPTION NUMBER SUMMARY STATISTICS OF TREE FARM LICENCES C h a r a c t e r i s t i c S p e c t r u m # O f i n c r e a s e s + It o f d e c r e a s e s # o f n o + c h a n g e s = N M e a n S t D e v V a r M i n - Max 1 . S t u m p a g e F e e s * 16 5 . 6 9 2 . 0 6 4 . 2 3 2 .oo 1 0 . 0 0 2 3 . 6 3 0 . 18 0 . 0 3 3 . 5 0 3 . 7 5 1 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 0 0 19 5 . 17 2 . 3 5 5 . 5 1 0 . 0 0 1 0 . 0 0 2 . A n n u a l 9 6 . 6 9 2 . 6 4 6 . 9 7 1 . 0 0 1 0 . 0 0 A l l o w a b l e C u t * 8 4 . 13 3 . 0 4 9 . 2 7 0 .oo 8 . 0 0 2 0 .OO 0 . 0 0 0 . 0 0 0 .oo O . O O 19 4 . . 9 1 3 . 3 5 1 1 . 2 5 0 . 0 0 1 0 . 0 0 3 . M a n a g e m e n t 3 4 . OO 1 . 9 5 3 . 8 1 2 . 7 5 6 . 2 5 E x p e n d i t u r e 15 4 . . 8 7 1 . 6 5 2 . 7 3 2 . 0 0 7 . 5 0 R e i m b u r s e m e n t s * 1 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 19 4 . . 4 7 1 . 9 6 3 . 8 3 0 . 0 0 7 . 5 0 4 . A c c u m u l a t e d 4 3 . 8 8 3 . 17 10 . 0 6 0 . 0 0 7 . 5 0 S e c t i o n 8 8 12 5 . . 17 2 . 51 6 . 3 3 2 . 0 0 1 0 . 0 0 C r e d i t s * ( 1 ) 3 O . OO 0 . OO 0 . 0 0 o . 0 0 O . O O 19 4 . 0 8 3 . 0 2 9 . 12 0 ,oo 1 0 . 0 0 Table E5 continued C h a r a c t e r i s t i c H o f ff o f ft o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 5 . H a r v e s t i n g 12 4 . 4 5 3 . . 16 10 . 0 1 0 . OO 1 O . 0 0 U t i1 i z a t i o n 2 4 . . 5 0 O •71 0 . 5 0 4 . OO 5 . 0 0 R e q u i r e m e n t s * 5 0 . . 0 0 0 . . 0 0 0 . 0 0 0 . OO O . O O 19 3 . 2 9 3 . . 2 0 10 . 22 0 . 0 0 1 0 . 0 0 S . E n v i r o n m e n t a l 15 3 . . 7 3 2 . 3 5 5 . . 5 0 0 . . 0 0 1 0 . 0 0 P r o t e c t i o n 1 3 . . 7 5 0 . 0 0 0 . 0 0 3 . 7 5 3 . 7 5 Gu i d e l i n e s * 3 0 . . 0 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 3 . . 14 2 . 54 6 . 24 0 . . 0 0 1 0 . 0 0 7 . R o a d B u i 1 d i n g 2 4 . . 7 5 1 . 7 7 3 . 13 3 . 5 0 6 . O O Re i m b u r s e m e n t s * 1 1 3 . . 9 1 2 . 3 9 5 . 6 9 0 . OO 7 . O O 6 0 . . 0 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 2 . . 7 6 2 . 6 7 7 . 12 0 . . 0 0 7 . 0 0 8 . N o n - v o l u n t a r y 13 2 . . 7 3 2 . 3 5 5 . 5 3 0 . . 0 0 7 . 0 0 P 1 a n n i n g 2 5 . . 0 0 0 . 0 0 0 . 0 0 5 , . 0 0 5 . 0 0 C o s t s * 4 0 . OO 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 2 . . 3 9 2 . 4 1 5 . 7 9 0 . 0 0 7 . 0 0 9 . R e f o r e s t a t i o n 10 4 . 3 0 2 . 9 8 8 . 9 0 0 .oo 1 0 . OO R e q u i r e m e n t s * 2 1 . . 0 0 1 . 4 1 2 . 0 0 0 oo 2 . 0 0 7 0 . 0 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 2 . . 37 3 . 0 0 9 . 0 2 0 . . 0 0 1 0 . 0 0 Table E5 continued C h a r a c t e r i s t i c ff o f ff o f ff o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 10. P e r i o d B e f o r e 6 3 . . 33 1 .51 2 . 27 2 .00 5 .00 S e c t i o n 88 4 5 . 38 1 . 70 2 .90 3 .00 7 .00 R e i m b u r s e m e n t s * (1) 9 O, . OO 0 .00 0 . OO O . O O O . O O 19 2 . 18 2 .49 6 . 20 0 . O O 7 .00 11 . O v e r - c u t t i n g 7 3. 07 3 .61 13 .04 0 .00 10.00 P e n a l t i e s * 3 4 . 83 4 . 19 17 .58 0 .00 7 .50 9 0. .00 0 .00 0 .00 0 00 0.00 19 1 . 89 3 . 17 10 .07 0 .00 10.00 12. S u s t a i n e d Y i e l d 0 0. OO 0 .00 0 . OO O .OO O . O O C u t C o n t r o l s * (2) 5 6 . 3 1 . 72 2 . 95 4 OO 8 . O O 14 0. 00 0 .00 0 .00 0. OO O . O O 19 1 . 66 2 .96 8 .78 0. .00 8 .00 13. U n d e r - c u t t i n g 6 2 . 75 4 .05 16 . 38 7 o . .00 10.00 P e n a l t i e s * 2 7. 25 0. . 35 0 . 13 7 . 00 7 . 50 1 1 0. 00 0. .00 0 .00 0. 00 0.00 19 1 . 63 3 . . 18 10 . 1 1 O . oo 10.00 14. P r o p e r t y T a x e s 7 1 . 79 3 . .65 13 . 32 O . 00 10.00 o f C r o w n G r a n t s 4 3 . 38 2 . 81 7 .90 0. 50 7 .00 w i t h i n T r e e 8 0. 00 0. .00 0 .00 0. 00 0.00 F a r m L i c e n c e s * 19 1 . 37 2 . 75 7 .55 0. 00 10.00 Table E5 continued C h a r a c t e r i s t i c H o f tt o f H o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 1 5 . T e n u r e T e r m * 2 4 . 5 0 6 . 3 6 4 0 . 5 0 0 . 0 0 9 . 0 0 4 4 . , O 0 2 . 4 5 6 . 0 0 1 . 0 0 7 . O O 13 O . 0 0 O . 0 0 0 . 0 0 O . OO O . O O 19 1 . 32 2 . 6 9 7 . 2 3 O . O O 9 . O O 1 6 . F o r e s t P r o t e c t i o n 9 2 . . 5 6 2 . . 4 0 5 . 7 8 0 . 0 0 7 . 0 0 S t i p u l a t i o n s * 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 10 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 19 1 . . 2 1 2 . . 0 7 4 . 2 8 0 . 0 0 7 . 0 0 17 . L o g E x p o r t 5 1 . 9 0 2 . 5 1 6 . 3 0 0 .oo 6 . O O C o n t r o l s * 5 2 . 10 2 . 13 4 . 5 5 O .oo 5 . O O 9 0 . . 0 0 0 . . 0 0 0 . 0 0 0 .oo O . O O 19 1 . 0 5 1 . 8 6 3 . . 4 7 0 . . 0 0 6 . 0 0 1 8 . C e r t a i n t y o f 2 6 . . 2 5 3 . . 18 10 . 13 4 . . 0 0 8 . 5 0 R e p l a c e m e n t 2 3 . 5 0 0 . 71 0 . . 5 0 3 . . 0 0 4 . 0 0 O p p o r t u n i t y * 15 0 . 0 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 1 . , 0 3 2 . . 2 8 5 . 18 0 . 0 0 8 . 5 0 1 9 . T e n u r e 1 5 . OO 0 . 0 0 0 .OO 5 . oo 5 . O O T r a n s f e r a b i l i t y 2 4 . 5 0 4 . 9 5 24 . 5 0 1 . oo 8 . 0 0 16 0 . 0 0 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 0 . 7 4 2 . 10 4 . 4 3 0 . . 0 0 8 . 0 0 Table E5 continued C h a r a c t e r i s t i c S p e c t r u m ff o f tf o f ff o f n o i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 20. A d d i n g 5 2 .80 4 . 38 19 .20 0 .00 10.00 C r o w n G r a n t 0 0. .00 0 .00 0 .OO 0 .OO O.OO R o y a l t y F e e s (3) 14 0. OO 0. .00 0 .00 0 OO O.OO 19 0. . 74 2 . .42 5. . 87 0. .00 10.00 21. P r o c e s s i n g P l a n t 3 0. .00 0 .00 0 .00 0 .00 0 . 0 0 S t i p u l a t i o n s 3 3 . 00 3 .61 13 .00 0. .00 7 .00 13 0. .00 0 .00 0 .00 0. .00 0 .00 19 0. .47 1 .65 2 .71 0 .00 7 .00 22. A l l o t m e n t T y p e O O. .00 o. OO O. .00 O. .00 O.OO 2 3 . 5 4 . . 95 24 . . 50 0. oo 7.00 17 0. OO 0. OO 0 OO 0. oo O.OO 19 0. . 37 1 . .61 2. . 58 O. .00 7 .00 23 . E 1 i mi n a t i n g 0 0. 00 0. .00 0. .00 0. 00 0 . 0 0 A C E P r o v i s i o n s (4) 2 2 . 50 3. .54 12 . . 50 0. .00 5 .00 17 0. 00 0. .00 0. .00 0. .00 0 .00 19 0. 26 1 . . 15 1 . . 32 0. 00 5.00 24. S c h e d u l e A 7 O. 57 1 . .51 2 . . 29 0. 00 4 .OO R o y a l t y C h a r g e s O 0. 00 0. .00 0. .00 0. 00 O.OO 12 0. 00 0. .00 0. .00 0. 00 0 . 0 0 19 0. 21 0. 92 0. 84 0. 00 4 .00 Table E5 continued C h a r a c t e r i s t i c tt o f tt o f ft o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Max 2 5 . A d d i n g 6 0 . 3 3 0 . . 8 2 0 . 6 7 0 . 0 0 2 . 0 0 T i m b e r L i c e n c e 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 P r o p e r t y T a x e s 13 0 . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 19 0 . 1 1 0 . . 4 6 0 . 2 1 0 .OO 2 . 0 0 * C h a r a c t e r i s t i c s p e c t r a w i t h m e a n r a t i n g s s i g n i f i c a n t 1y g r e a t e r t h a n z e r o , a=5%. ( 1 ) S e c t i o n 8 8 o f t h e B r i t i s h C o l u m b i a F o r e s t s A c t a l l o w s a p p r o v e d e x p e n d i t u r e s o n f o r e s t m a n a g e m e n t t o b e s u b t r a c t e d f r o m s t u m p a g e f e e s . ( 2 ) H y p o t h e t i c a l c h a n g e s p r o p o s i n g i n c r e a s e s o f r e s t r i c t i o n s a l o n g t h i s s p e c t r u m w e r e n o t g i v e n a s a n o p t i o n t o t h e h o l d e r b e c a u s e h o l d e r s w e r e t h o u g h t t o a l r e a d y b e a t t h e s p e c t r u m e x t r e m e . ( 3 ) H y p o t h e t i c a l c h a n g e s p r o p o s i n g d e c r e a s e s o f r e s t r i c t i o n s a l o n g t h i s s p e c t r u m w e r e n o t g i v e n a s a n o p t i o n t o t h e h o l d e r b e c a u s e h o l d e r s w e r e t h o u g h t t o a l r e a d y b e a t t h e s p e c t r u m e x t r e m e . ( 4 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . TABLE E6: SECURITY PERCEPTION NUMBER SUMMARY STATISTICS OF TREE FARM LICENCES C h a r a c t e r i s t i c ft o f It o f H o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n M a x 1 . S t u m p a g e F e e s * 1G - 5 . 6 9 2 . 0 6 4 . 2 3 - 10 . 0 0 - 2 . 0 0 2 3 . 6 3 0 . 18 0 . 0 3 3 . 5 0 3 . 7E 1 0 . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 ( D OC 19 - 4 . 4 1 3 . 6 4 13 . 2 3 - 10 . 0 0 3 . 7 5 2 . A c c u m u l a t e d 4 2 . 3 8 4 . 7 5 2 2 . 5 6 - 3 . 0 0 7 . 5 0 S e c t i o n 8 8 12 - 5 . 17 2 . 5 1 6 . . 3 3 - 10 . 0 0 - 2 . O O C r e d i t s * ( 1 ) 3 0 OO O .OO 0 . . 0 0 0 .OO 0 . O O 19 - 2 . . 7 6 4 . 3 2 . 18 . . 62 - 1 0 . . 0 0 7 . 5 0 3 . M a n a g e m e n t 3 4 . 0 0 1 . 9 5 3 . . 8 1 2 . 7 5 6 . 2 5 E x p e n d i t u r e 15 - 3 . 8 7 3 . 4 8 12 . . 0 9 - 7 . . 0 0 7 . 5 0 R e i m b u r s e m e n t s * 1 0 . . 0 0 0 . 0 0 0 . . 0 0 0 . . 0 0 0 . 0 0 19 - 2 . . 4 2 4 . 3 3 18 . 7 6 - 7 . . 0 0 7 . 5 0 4 . E n v i r o n m e n t a l 15 - 3 . . 3 0 2 . 9 6 8 . . 77 - 1 0 . . 0 0 3 . 2 5 P r o t e c t i o n 1 3 . 7 5 O OO 0 . 0 0 3 . 7 5 3 . 7 5 Gu i d e 1 i n e s * 3 0 . OO 0 . 0 0 0 . 0 0 O . 0 0 0 . O O 19 - 2 . 4 1 3 . 2 5 1 0 . 5 6 - 1 0 . . 0 0 3 . 7 5 Table E6 continued C h a r a c t e r i s t i c tt of tt of tt of n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n q e s = N M e a n S t D e v V a r M i n Max 5. A n n u a l 9 6 69 2. 64 6 .97 1 .00 10.00 A l l o w a b l e C u t 8 -2 . 37 4 , . 72 22 . 27 -8 .00 7.00 2 0. .00 0. .00 0. .00 0 .00 0 . 0 0 19 2. . 17 5. .63 31 .70 -8 . .00 10.00 6. N o n - v o 1 u n t a r y 13 -2 . 34 2 . 76 7 .64 - 7 . OO 2 . 50 P l a n n i n g 2 -5 . 00 0. 00 0 .00 -5 . .00 - 5 . 0 0 C o s t s * 4 0. 00 0. 00 0. .00 0 .00 0 . 0 0 19 - 2 . 13 2 . 66 7 .05 -7 .00 2.50 7 . R o a d B u i 1 d i n g 2 4 . 75 1 . 77 3 . 13 3 . 50 6.00 R e i m b u r s e m e n t s * 1 1 - 3 . 91 2 39 5 .69 -7 .OO O.OO 6 0. OO 0. 00 0 .00 0 .00 O.OO 19 - 1 . 76 3 . 45 1 1 .90 -7 .OO 6 .OO 8. S u s t a i n e d Y i e l d 0 0. 00 0 .00 0 .00 0 .00 0 . 0 0 C u t C o n t r o l s * (2) 5 6 . 3 1 . , 72 2 .95 4 . .00 8.00 14 0. .00 0. .00 0 .00 0. .00 0 . 0 0 19 1 . .66 2 .96 8 .78 0. .00 8 .00 9. H a r v e s t i n g 12 -2 . 42 5 . 03 25 . 30 - 1 0 . oo 10.00 U t i 1 i z a t i o n 2 4 . 50 0 . 7 1 0 . 50 4 . . oo 5 .OO R e q u i r e m e n t s 5 0. . OO 0 .OO O .00 O. . oo O.OO 19 - 1 . 05 4 . 53 20 . 48 - 10 . oo 10.00 Table E6 continued C h a r a c t e r i s t i c tt o f tt o f tt o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s N M e a n S t D e v V a r M i n Max 10. F o r e s t P r o t e c t i o n 9 -2 . 1 1 2. .85 8 . 1 1 -7 . .00 2 .00 S t i p u l a t i o n s 0 0. .00 0, .00 0. 00 .0. .00 0.00 10 0. .00 0. 00 0. do 0. 00 0.00 19 -1 . 00 2, . 19 4 . 78 -7 . 00 2 .00 11. R e f o r e s t a t i o n 10 - 1 . 90 5. ,04 25 . .43 -7 . .00 10. oo R e q u i r e m e n t s 2 1 . OO 1 .41 2 OO 0 . oo 2 . OO 7 0 .OO O. .00 0. 00 0. . oo 0.00 19 -0 . 89 3. 75 14 . 10 -7 . .00 10. oo 12 . A d d i n g 5 -2 .80 4 . 38 19 . 20 -10. .00 0.00 C r o w n G r a n t 0 0 .00 0 .00 0. .00 0. 00 O . O O R o y a l t y F e e s (3) 14 0 .00 0 .00 0. .00 0. .00 0.00 19 -o. . 74 2 . 42 5 . 87 - 10. oo 0.00 13 . P e r i o d B e f o r e 6 -2 .00 3 . , 27 10. 80 -5 . oo 2 . O O S e c t i o n 88 4 0. . 37 6 42 4 1 . 23 -7 . oo 6.00 R e i m b u r s e m e n t s (1) 9 0 .00 0. .00 0. 00 0. .00 0.00 19 -o .55 3 .30 10. .91 -7 . .00 6 .00 14 . A l l o t m e n t T y p e 0 0 .00 0 .00 0. .00 0. .00 0.00 2 3 . 5 4 .95 24 . .50 0. ,00 7.00 17 0 .00 0 .00 0. .00 0. oo 0.00 19 0 . 37 1 .61 . 2 . .58 0. oo 7 .00 Table E6 continued C h a r a c t e r i s t i c # o f H o f H o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n q e s = N M e a n S t D e v V a r M i n Max 1 5 . T e n u r e T e r m 2 4 . 5 0 6 . 3 6 4 0 . 5 0 0 . OO 9 . 0 0 4 - 4 . . 0 0 2 . , 4 5 6 . 0 0 - 7 . 0 0 - 1 . 0 0 13 0 . . 0 0 0 . . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 19 - 0 . . 3 7 2 . , 9 9 8 . 9 1 - 7 . 0 0 9 . 0 0 1 6 . O v e r - c u t t i n g 7 - 3 . , 0 7 3 . 61 13 . 0 4 - 10 . 0 0 0 . 0 0 P e n a l t i e s 3 4 . 8 3 4 , , 19 17 . 5 8 O .OO 7 . 5 0 9 0 . . OO O, , 0 0 0 . 0 0 0 OO O . O O 19 - 0 . . 3 7 3 , , 7 0 13 . 72 - 1 0 , . 0 0 7 . 5 0 1 7 . C e r t a i n t y o f 2 6 . 2 5 3 . 18 10 . . 13 4 , . 0 0 8 . 5 0 R e p l a c e m e n t 2 - 3 . 5 0 0 71 0 . 5 0 - 4 . 0 0 - 3 . 0 0 O p p o r t u n i t y 15 0 . 0 0 0 , . 0 0 0 . 0 0 0 . 0 0 0 . 0 0 19 0 . . 2 9 2 , , 4 9 6 . 2 0 - 4 . 0 0 8 . 5 0 1 8 . E 1 i m i n a t i n g 0 0 . OO O . 0 0 0 . 0 0 0 . . 0 0 O . O O A C E P r o v i s i o n s ( 4 ) 2 2 . , 5 0 3 . 54 12 . 5 0 0 oo 5 . 0 0 17 0 . OO 0 . . 0 0 0 . 0 0 0 . . oo 0 . 0 0 19 0 . . 2 6 1 . . 15 1 . 32 0 , . 0 0 5 . 0 0 1 9 . P r o c e s s i n g P l a n t 3 0 . , 0 0 0 , 0 0 0 . 0 0 0 , . 0 0 0 . 0 0 S t i p u l a t i o n s 3 - 1 . . 6 7 4 . 7 3 22 . 3 3 - 7 . 0 0 2 . 0 0 13 0 . , 0 0 0 . 0 0 0 . 0 0 0 . . 0 0 0 . 0 0 19 -o, , 2 6 1 , . 6 9 2 . 8 7 - 7 , . 0 0 2 . O O Table E6 continued C h a r a c t e r i s t i c S p e c t r u m tt o f tt o f tt o f n o i n c r e a s e s + d e c r e a s e s + c h a n q e s = N M e a n S t D e v V a r M i n Ma> 2 0 . S c h e d u l e A 7 - O . 57 1 . 51 2 . . 29 - 4 . OO O.OO R o y a l t y C h a r g e s O O . OO 0 . OO O . 00 O . 0 0 O.OO 12 0 . . 00 O. 0 0 0 . . 0 0 0 . 0 0 O.OC 19 - 0 . .21 0 . 92 0 . .84 - 4 . 0 0 0 . 0 0 21 . T e n u r e 1 5 . . 00 0 . 0 0 0 . 00 5 . 0 0 5 . 0 0 T r a n s f e r a b i 1 i t y 2 - 4 . . 5 0 4 . 95 24 . . 50 - 8 . 0 0 -1 . 0 0 16 0 . OO 0 . 0 0 0 . . 00 0 . OO O.OC 19 - O . 2 1 2 . 23 4 . .95 - 8 . 0 0 5 .OO 2 2 . A d d i n g 6 - 0 . 33 O. 82 0 . .67 - 2 . 0 0 O.OO T i m b e r L i c e n c e 0 0 . . 0 0 O. 0 0 0 . 0 0 O . 0 0 O.OO P r o p e r t y T a x e s 13 0 . 0 0 0 . 0 0 0 . . 0 0 0 . . 0 0 0 . 0 0 19 - 0 . . 10 0 . 46 0 .21 - 2 0 0 0 . 0 0 2 3 . L o g E x p o r t 5 - 0 . . 5 0 3 . . 24 10 . 5 0 - 6 . . 0 0 2 . 5 0 C o n t r o l s 5 o . . 9 0 3 . 01 9 .05 - 3 . 0 0 5 .OO 9 o OO O . 0 0 O . 0 0 0 . o o O.OC 19 o . 1 1 2 . 15 4 .63 - 6 . o o 5 . OC 2 4 . U n d e r - c u t t i n g 6 - 2 . . 7 5 4 . .05 16 . 38 - 1 0 . 0 0 0 . 0 0 P e n a l t i e s 2 7 . 2 5 0 . 35 0 . 13 7 . 0 0 7 . 5 0 1 1 0 . 0 0 0 . 00 0 . 0 0 0 . 0 0 O.OC 19 - 0 . 1 1 3 . 59 12 .91 - 1 0 . 0 0 7 . 5 0 Table E6 continued C h a r a c t e r i s t i c # o f tt of tt o f n o S p e c t r u m i n c r e a s e s + d e c r e a s e s + c h a n g e s = N M e a n S t D e v V a r M i n Ma> 2 5 . P r o p e r t y T a x e s 7 - 1 . 7 9 3 6 5 13 . 32 - 10 0 0 0 0 0 o f C r o w n G r a n t s 4 3 . 3 8 2 81 7 . 9 0 O 5 0 7 0 0 w i t h i n T r e e 8 0 . 0 0 0 0 0 0 . 0 0 0 OO 0 0 0 F a r m L i c e n c e s 19 0 . 0 5 3 0 7 9 . 52 - 1 0 0 0 7 0 0 * C h a r a c t e r i s t i c s p e c t r a w i t h m e a n r a t i n g s s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o , a=5%. ( 1 ) S e c t i o n 8 8 o f t h e B r i t i s h C o l u m b i a F o r e s t s A c t a l l o w s a p p r o v e d e x p e n d i t u r e s o n f o r e s t m a n a g e m e n t t o b e s u b t r a c t e d f r o m s t u m p a g e f e e s . ( 2 ) H y p o t h e t i c a l c h a n g e s p r o p o s i n g i n c r e a s e s o f r e s t r i c t i o n s a l o n g t h i s s p e c t r u m w e r e n o t g i v e n a s a n o p t i o n t o t h e h o l d e r b e c a u s e h o l d e r s w e r e t h o u g h t t o a l r e a d y b e a t t h e s p e c t r u m e x t r e m e . ( 3 ) H y p o t h e t i c a l c h a n g e s p r o p o s i n g d e c r e a s e s o f r e s t r i c t i o n s a l o n g t h i s s p e c t r u m w e r e n o t g i v e n a s a n o p t i o n t o t h e h o l d e r b e c a u s e h o l d e r s w e r e t h o u g h t t o a l r e a d y b e a t t h e s p e c t r u m e x t r e m e . ( 4 ) T h e A l l o w a b l e C u t E f f e c t ( A C E ) p r o v i s i o n s a l l o w h o l d e r s t o i n c r e a s e t h e i r c u r r e n t c u t s i n r e t u r n f o r i n v e s t m e n t s i n f o r e s t m a n a g e m e n t w h i c h c a n b e s h o w n t o i n c r e a s e f u t u r e y i e l d s . 234 APPENDIX F : QUESTIONNAIRE FORM FOR MANAGEMENT EXPENDITURES Fores t Company: Company Represen ta t ive : Represen ta t ive T i t l e : A l l quest ions of t h i s s e c t i o n r e f e r to Schedule B lands w i t h i n Tree Farm  L icence #:  1. W h a t i s t h e d o m i n a n t spec ies type? (p lease s p e c i f y ) : 2 . What i s the d i s t r i b u t i o n of s i t e c l a s s ? a . % h igh b . % medium c . % poor and low 3. R e l a t i v e to other commercial fo re s t l and i n the p r o v i n c e what are the cos ts of h a r v e s t i n g and d e l i v e r i n g to m i l l s ? (p lease c i r c l e one) a . h igh b . medium c . low 4. a . What i s the s i z e of the ho ld ing? hec ta res b . How much of the t o t a l a rea i s p r o d u c t i v e f o r e s t land? ( i . e . land which c o n t r i b u t e s to your Annual A l l o w a b l e Cut ) hectares 5. Companies may make s e v e r a l k inds of expendi tures i n f o r e s t management. Expendi tures may be: 235 a. reimbursed by the province, b. made because of mandatory tenure s t i p u l a t i o n s which are not reimbursed ( i . e . expenditures that you would not have made v o l u n t a r i l y had they not been r e q u i r e d by the M i n i s t r y ) , or c. v o l u n t a r y investments which are expenditures that are not reimbursed or due to mandatory tenure s t i p u l a t i o n s . How much of each k i n d of expenditure has been spent on f o r e s t management from 1980 to 1985 f o r each of the f o l l o w i n g a c t i v i t i e s : s i t e preparation? reimbursed 1981 $ 1982 $ 1983 $ 1984 $ 1985 $ mandatory v o l u n t a r y p l a n t i n g ? reimbursed 1981 1982 1983 1984 1985 $ $ $ $ $ mandatory $ $ $ $ $ v o l u n t a r y $ $ $ $ $ brush c o n t r o l ? reimbursed mandatory v o l u n t a r y 1981 1982 $ 1983 $ 1984 $ 1985 $ spacing? reimbursed 1981 $ 1982 $ 1983 $ 1984 $ 1985 $ f e r t i l i z a t i o n ? reimbursed 1981 $ 1982 $ 1983 $ 1984 $ 1985 $ commercial t h i n n i n g ? reimbursed 1981 $ 1982 $ 1983 $ 1984 $. 1985 $ $ $ $ $ $ $ $ $ mandatory $ $ $ $ $ v o l u n t a r y $ $ $ $ $ mandatory v o l u n t a r y $ \ $ $ $ $ $ $ $ $ $ mandatory $ $ $ $ $ v o l u n t a r y $ $ $ $ $ 237 how many hectares were the f o l l o w i n g a c t i v i t e s performed from 1981 1985? harvesting? 1) 1981 hectares 2) 1982 hectares 3) 1983 hectares 4) 1984 hectares 5) 1985 hectares s i t e p reparation? 1) 1981 hectares 2) 1982 hectares 3) 1983 hectares 4) 1984 hectares 5) 1985 hectares p l a n t i n g ? 1) 1981 hectares 2) 1982 hectares 3) 1983 hectares 4) 1984 hectares 5) 1985 hectares brush c o n t r o l ? 1) 1981 hectares 2) 1982 hectares 3) 1983 hectares 4) 1984 hectares 5) 1985 hectares spacing ( i . e . pre-commercial t h i n n i n g ) ? 238 1) 2) 3) 4) 5) 1981 1982 1983 1984 1985 f . f e r t i l i z a t i o n ? 1) 1981 2) 1982 3) 1983 4) 1984 5) 1985 hectares hectares hectares hectares hectares hectares hectares hectares hectares hectares commercial thin n i n g ? 1) 1981 1982 1983 1984 1985 hectares hectares hectares hectares hectares How many hectares of land i n 1983 1 were i n the f o l l o w i n g age c l a s s e s ? : a. 1 to 10 years o l d ? hectares b. 11 t o 20 years old? hectares c. Please i n d i c a t e the year of i n v e n t o r y i f other than 1983 2) 3) 4) 5) 1 I f i n f o r m a t i o n i s not a v a i l a b l e f o r t h i s year, please o b t a i n the f i g u r e s f o r as c l o s e a year as i s p o s s i b l e . 

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