Book Chapter
Valuation of Tropical Forests

The chapter begins with a discussion of the major uses of tropical forests and the relationships among the different uses (for example, compatibility between such uses and forest conservation and sustainability). A framework is then developed for valuation which takes into account the varied uses. A distinction is made between valuing the various services provided by the forest and valuing the forest itself. A time dimension is crucial: it affects sustainability but also it affects the sequence of pattern of uses. Values associated with different uses may grow at different rates. The present value of a tract of land also depends on how uncertainty about future values is resolved. It is argued that an exercise of the valuation of tropical forests cannot be designed without reference to the types of decisions that are being made. Long-time horizon and uncertainty about future uses complicate the issues. The chapter suggests that analysts develop a ‘balance sheet’ of affected parties, both present and future, taking into account all the significant impacts. Such a balance sheet forces the analyst to be explicit about the distributional implications of alternative uses, and thus provides a framework for extrapolating future values of tropical forests.