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Abstract

The 1989 publication of Wasting Assets by the World Resources Institute sparked considerable interest in the modification of national income accounts to reflect the depletion of natural resources. Recently, attention has focused on issues related to forest resources. Given that forest resources provide a wide range of economic benefits, one should expect that their proper incorporation into the national accounts requires several adjustments to standard procedures. This is indeed the case. This note focuses on matters related to timber depletion. It examines the analytical foundations of methods for calculating the economic depreciation of timber resources. It begins by reviewing estimation methods for nonrenewable resources. It then reviews the standard "net-depletion" method for timber resources. It demonstrates that this methods tends to overstate both the decrease in capitalized forest value that occurs when mature forests are logged and the increase that occurs as immature forests regenerate. It presents alternative methods, based on the familiar Faustmann model of optimal forest management, that avoid these biases.

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