Journal of Forest Economics > Vol 12 > Issue 1

Optimal forest conservation: The role of green-image demand and investments

Ville Mälkönen,
Suggested Citation
Ville Mälkönen (2006), "Optimal forest conservation: The role of green-image demand and investments", Journal of Forest Economics: Vol. 12: No. 1, pp 51-73.

Publication Date: 14 Mar 2006
© 0 2006 Ville Mälkönen
JEL Codes:F12Q28L15
Timber marketWood product exportsProduct differentiationStrategic trade


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In this article:
Preliminaries: production costs and the green image demand 
Industry equilibria and timber markets 
Industry equilibria and forest conservation 
The optimal conservation level 


We investigate optimal forest conservation in a strategic-trade framework. Exporting firms produce wood products with domestic timber and use investments to reduce production costs. Conservation influences the industry equilibrium through higher timber prices and a price premium generated by the products’ green image. Higher timber prices reduce the firm's investments and output, but a strong demand effect reverses the result. The optimal conservation level is therefore lower than the first-best, unless the demand effect is strong. The equilibrium of a multilateral policy game involves higher industry profit and higher conservation requirements in both producing countries, when the demand effect is strong.