THE DEVELOPING FRAMEWORK FOR THE ECONOMIC EVALUATION OF FORESTRY IN THE UNITED KINGDOM*

Abstract

This paper evaluates the economic worth of forestry projects in the United Kingdom by using two different public sector investment appraisal criteria; the traditional discounted cash flows and the recently‐established sum of discounted consumption flows. In the latter, in view of the intergenerational distribution aspect of government projects, the conventional rules are modified, enabling the decision‐maker to treat all generations, present and future, in an equitable manner. Forestry is an excellent example to highlight the issue that many public sector investment projects re‐distribute income between generations. Its long gestation periods make it obvious that there is more than one generation involved in the venture. In this analysis a one hectare plantation of Sitka spruce, class 20, is considered for a single 50‐year rotation. Three different interest rates, 10 per cent test rate of discount, 5 per cent required rate of return, and 3 per cent forestry target rate are used under 4 different assumptions regarding the future price of timber.