Ecosel - marketing

The opportunity cost structure, such as the one depicted on Figure 1, allows the landowner to pursue at least one of three key marketing options.

1. Subsidies or compensation: The landowner could argue that it would cost him $17,660 in lost revenues to switch from the profit maximizing alternative (A) to Alternative C to produce 64.4 hectares of mature forest habitat in large patches (Figure 3.). Since both Alternative A and C are linked to spatially-explicit forest management plans, he would be able to back up this argument with tangible data and a production plan. Similar arguments could be made about the costs of switching to other Pareto-optimal alternatives. Governments will be more likely to compensate the landowner for their financial loss if they can monitor whether the purchased service is duly produced or not. This monitoring capability is guaranteed by the forest management plans that are generated by ECOSEL for each production bundle. If a departure occurs from the plan, that departure can easily be detected by the investor or by a third-party investigator. This capability will provide a certain level of assurance for the government to grant subsidies.

Figure 3.

2. Auctioning: The landowner could put all or some of the Pareto-optimal management alternatives up for bidding. The opportunity costs that are associated with each alternative, plus the sales and administrative costs could serve as the reserve prices. Unlike in conventional auctions, however, the environmental credits would not necessarily go to the highest bidder but to the one whose offer maximizes the total timber and non-timber revenues for the landowner. On Figure 4 for example, Bid 1 is the winner even though it has the smallest dollar value. To implement the transaction, the management plan associated with Alternative C (Bid 1) would have to be followed.

Figure 4.

It is important to note that multiple bids made on the same bundle of public services can be accepted in this auctioning format if their aggregate value plus the associated residual timber revenues is the highest. On Figure 5 for example, Bid 2, 3, 4 and 5 together with the residual timber revenue that is associated with Alternative B will provide more total revenues for the landowner than Alternative A plus Bid 1. Therefore, many small bids made on the same bundle of services could potentially be a decisive factor. To encourage entry into the auction, a two-stage Anglo-Dutch (Klemperer 1996) format is recommended, where the initial, open ascending phase is followed by a final sealed-bid first-price round. This will increase the likelihood of bids from both who want public services (e.g., viewshed aesthetics) and from those who want more timber production (e.g., a sawmill).

Figure 5.

3. Existing markets
Another marketing option might exist for the landowner if one or more of the services that she intends to sell have a functioning market and a market price. Carbon credits might eventually become such private goods. The landowner could simply use the market price as a benchmark against which she could compare her opportunity costs and decide if it is worth to switch alternatives and sell the service or not. Again, the associated spatial production plans could serve as a monitoring tool for the buyers to warrant the transaction. The grey dashed line and the arrow in Figure 3 illustrates a hypothetical situation when the market price (in this case, $500 per hectare for mature forest habitat) would make it profitable for the landowner to sell.

*Precision Forestry Cooperative* ECOSEL - A Forest Ecosystem Services Marketing Tool Sándor F. Tóth

Introduction Eco-services planning Marketing options Transactions . . . . . . . . . . . . . . . . . . . Introduction Eco-services planning Marketing options Transactions	Marketing options The opportunity cost structure, such as the one depicted on Figure 1, allows the landowner to pursue at least one of three key marketing options. 1. Subsidies or compensation: The landowner could argue that it would cost him $17,660 in lost revenues to switch from the profit maximizing alternative (A) to Alternative C to produce 64.4 hectares of mature forest habitat in large patches (Figure 3.). Since both Alternative A and C are linked to spatially-explicit forest management plans, he would be able to back up this argument with tangible data and a production plan. Similar arguments could be made about the costs of switching to other Pareto-optimal alternatives. Governments will be more likely to compensate the landowner for their financial loss if they can monitor whether the purchased service is duly produced or not. This monitoring capability is guaranteed by the forest management plans that are generated by ECOSEL for each production bundle. If a departure occurs from the plan, that departure can easily be detected by the investor or by a third-party investigator. This capability will provide a certain level of assurance for the government to grant subsidies. Figure 3. 2. Auctioning: The landowner could put all or some of the Pareto-optimal management alternatives up for bidding. The opportunity costs that are associated with each alternative, plus the sales and administrative costs could serve as the reserve prices. Unlike in conventional auctions, however, the environmental credits would not necessarily go to the highest bidder but to the one whose offer maximizes the total timber and non-timber revenues for the landowner. On Figure 4 for example, Bid 1 is the winner even though it has the smallest dollar value. To implement the transaction, the management plan associated with Alternative C (Bid 1) would have to be followed. Figure 4. It is important to note that multiple bids made on the same bundle of public services can be accepted in this auctioning format if their aggregate value plus the associated residual timber revenues is the highest. On Figure 5 for example, Bid 2, 3, 4 and 5 together with the residual timber revenue that is associated with Alternative B will provide more total revenues for the landowner than Alternative A plus Bid 1. Therefore, many small bids made on the same bundle of services could potentially be a decisive factor. To encourage entry into the auction, a two-stage Anglo-Dutch (Klemperer 1996) format is recommended, where the initial, open ascending phase is followed by a final sealed-bid first-price round. This will increase the likelihood of bids from both who want public services (e.g., viewshed aesthetics) and from those who want more timber production (e.g., a sawmill). Figure 5. 3. Existing markets Another marketing option might exist for the landowner if one or more of the services that she intends to sell have a functioning market and a market price. Carbon credits might eventually become such private goods. The landowner could simply use the market price as a benchmark against which she could compare her opportunity costs and decide if it is worth to switch alternatives and sell the service or not. Again, the associated spatial production plans could serve as a monitoring tool for the buyers to warrant the transaction. The grey dashed line and the arrow in Figure 3 illustrates a hypothetical situation when the market price (in this case, $500 per hectare for mature forest habitat) would make it profitable for the landowner to sell. Previous: Eco-services planning_________________Next: Transactions	Links: Sándor F. Tóth home Precision Forestry Cooperative College of Forest Resources University of Washington
Send mail to: toths@u.washington.edu Last modified: 12/18/2007 3:12 PM