Economics of mixed-species forestry with ecosystem services

The Faustmann-Hartman setup is widely established for specifying the economics of forest values besides timber, but it is criticized as restrictive for capturing diversity values. We show that extending the model to cover diversity attributes, i.e., mixed species and internal heterogeneity within species, is not enough to overcome these restrictions. Additionally, it is necessary to extend forest harvesting regimes to cover thinning, continuous cover forestry, and the management of commercially useless trees. Restrictions in the Faustmann-Hartman setup are first shown analytically with optimized thinning but without tree size structures. The empirical significance of these findings is shown by a model that includes four tree species, tree size structures, an extended set of forest management activities, a detailed description of harvesting costs, and a measure for stand diversity as a key factor behind ecosystem services. We show how an optimal harvesting regime, net revenues, wood output, and stand diversity depend on model flexibility, economic parameters, and the valuation of ecosystem services. In a setup allowing flexible management regimes, the costs of reaching a specified level of ecosystem services are negligible compared with those of the Faustmann-Hartman specification.