The Oil Drum: Inflationary Collapses, or The NPV of Grandchildren

Suppose you own a forest. You’d like to make some money from the trees and you are considering two options. One is to clearcut the whole thing and sell the timber, which will net you $X. This particular forest happens to be on a steep erodable slope such that the soil will probably wash off and no more trees will grow after one clearcutting.

Your other option is to manage the forest sustainably. You consult a sustainable forestry expert who estimates that you could cut an amount of timber that would net you $kX this year, where k is some number much less than one, and the same amount of timber year after year in perpetuity (which would produce more $$ when adjusted for inflation). Thus k is roughly the fraction of the timber you’d get in one go from the clearcut that you could cut each year on a sustainable basis (the “roughly” comes from correcting for harvesting and management expenses, etc). The expert believes in sustainable forestry and emphasizes to you the benefits for the wildlife (who live in the trees), downstream neighbors (who won’t get flooded with rivers choked with your silt), and fish (who can spawn in the unsullied gravels of the streams).

Before acceding to these persuasive arguments, you check with your accountant. What would she recommend?
Much more after the jump to The Oil Drum.