Economic Evaluation of Forestry Research: Synthesis and Methodology

Interest in the economic impacts of research and development (R&D) among forest economists is of relatively recent vintage when compared with the long history of such inquiries in agricultural economics. In contrast to the literature in agricultural economics, which can be traced to the seminal works of Schultz (1953) and Griliches (1958), such work in forest economics was not of widespread interest until 1979 when the USDA Forest Service responded to the Forest and Rangeland Renewable Resources Planning Act of 1974 by initiating an examination of policy concerning public support for R&D (Callaham, 1981). In 1980 the Forest Service began a national program to develop methods for the economic evaluation of R&D in forest product technologies under the initial direction of Allen Lundgren at the North Central Forest Experiment Station. The research program established by the North Central Forest Experiment Station had five broad components ranging from the identification of the users of forestry research evaluation and their needs to the development of methods for evaluating that research (Lundgren, 1983). The bulk of the work which has been completed may be classified, following Bengston (1986), as impact evaluations and process evaluations. Impact evaluations examine effects of R&D on the economy, and are represented by estimates of the increase of producer and consumer surplus due to R&D, estimates of the marginal productivity of R&D expenditures, and studies of the effect of R&D on employment, income and income distribution, the balance of trade, the environment, and market structure. Process evaluations examine the research process itself within the economic organization in order to determine how decisions are made and R&D is carried out. Such studies focus on how the agency or firm selects, plans, monitors, and evaluates projects. The goal of this kind of evaluation is to improve the research decision-making. A broad overview of many of the impact and process evaluation studies in forestry may be found in Bengston (1986). This paper concentrates instead of two types of impact evaluation approaches which have been adopted and modified for forestry R&D evaluation from agricultural economics. Results of such studies in forest economics are presented in the next section. Following that section, methodologies are discussed. While the theoretical underpinnings of these methodologies are well known to agricultural economists, details differ to a lesser or greater extent in the forestry studies, and may be of interest. The methodology developed in Seldon (1987) and Seldon and Newman (1987) is described in detail.