Conference Agenda

Boreal forests provide a wide range of ecosystem services (ESs), including marketable outputs such as timber and bioenergy, as well as non-marketable outputs such as biodiversity and carbon sequestration. In this study, we propose a production model to define the forest production process, explicitly incorporating both desirable (good) and undesirable (bad) outputs. We employ a Directional Distance Function (DDF) to represent this production process and enhance the model by endogenizing the directional vector (F¨are et al., 2017), resulting in a modified version of DDF. To account for sample variation and correct for parameter deviation (Bostian and Herlihy, 2014), we further implement a bootstrap procedure. Utilizing the dual relationship between the revenue function and the DDF, we estimate the shadow prices of ecosystem services. We estimate the model with deterministic LP approach on a countyby- year panel from 2008 to 2014. We find that shadow prices vary across counties and over time but are generally low. Our results indicate that the shadow price of biodiversity is SEK 3, while that of carbon sequestration is SEK 50, suggesting that preserving one additional unit of biodiversity and carbon sequestration incurs a revenue loss of SEK 3 and SEK 50, respectively. We also show that abatement costs correspond to carbon emission is SEK 2000 per ton. We obtain the knowledge of ease of substitutability among various outputs by Morishima elasticity in order to determine a least-cost strategy of obtaining desired levels of environmental quality and informing decision makers whether or where policy incentives should prioritize. Given the relatively low shadow values of providing ESs and the long-term social benefits associated with ESs, we argue that a Payment for Ecosystem Services (PES) scheme is warranted to incentivize forest owners to provide these services.