Are ecosystem services complementary or competitive? An econometric analysis of cost functions from private forests in Vietnam

Forest ecosystem services (FES) provisioning and management in Vietnam is highly rated in the Vietnamese’s environmental agenda. The main rationale of private forest management is to maximise profit from timber and non-timber forest products (NTFPs) production. From a social point of view there is an under-supply of positive forest externalities (or non-marketed ecosystem services). The paper contributes to the ecosystem services (ES) literature by assessing the production cost structure, i.e., the cost of marketed production and provision of carbon and biodiversity, based on a survey of private forest owners in the Hoa Binh Province. The econometric analysis is carried out applying a dual cost function approach to analyse the trade-off between forestry costs and ecological performance. This is, to our knowledge, the first time such an approach is applied to estimate the production relationship between marketed outputs and non-marketed ES in the forest sector. This approach appears to be appropriate for handling the multiple joint outputs of production in forest. It allows us to estimate marginal costs and other cost measures such as cost complementarities in production of multiple ES. Our results indicate that there is complementarity in the provision of timber and carbon sequestration and therefore, policies enhancing carbon sequestration in private forest in Vietnam can be implemented without additional costs for the forest owner. We also find that keeping deadwood had no significant cost and was complementary with NTFP, but could increase the marginal cost of producing timber. This means that biodiversity can be enhanced without additional costs on the condition of limited quantity of deadwood.