Title: Shadow Pricing Ecosystem Services in Boreal Forests: Theory and an Exploratory Application
Abstract Boreal forests, encompassing a vast expanse of the Earth’s northern latitudes, hold immense potential for marketed wood production while simultaneously providing an array of non-marketed ecosystem services (ESs). We broadly classified boreal forests into four categories: (i) production and provisioning, (ii) Regulation and regulating, (iii) Habitat and supporting and (iv) Recreational and cultural. In Sweden, 70\% of the land area are forested and 80\% of the forested lands are under active management. In addition to timber production, Swedish forests provide valuable but non-marketed ESs that contribute to environment and climate change. However, the trade-off between boreal forest production and ESs are rarely studied. We define a forest production technology, with forest stocks, forest lands and working hours as inputs and timber (sawlogs, pulpwoods and fuelwoods) production, bio-energies, a net carbon sequestration (measured by forest annual growth subtracting carbon emission) and biodiversity (proxied by dead woods) as outputs, and estimate shadow prices for ESs using a quadratic form of directional distance function (DDF). We propose to evaluate the trade-offs or the opportunity cost in term of timber production for ecosystem services and, given the availability of price information, provide a monetary value for the trade-offs. In addition, this study accounts for stochastic influence when estimating the production frontier by bootstrapping methods. We calculate a bias-corrected technical inefficiency measure and (bias-corrected) shadow prices. Compared with the original estimates, the average shadow prices for carbon sequestration and carbon emission are SEK 25.84 (SEK 246 for the original estimates) and SEK 4169.23 (SEK 1196.80 for the original estimates) per 1000 ton respectively.
