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Endogenous time preferences of forest goods and community-based forest management

Kumar, Pradeep, Kant, Shashi
Ecological economics 2019 v.163 pp. 205-214
discount rate, economic analysis, forest management, forests, fuelwood, grasses, households
In the economic analysis of CBFM, people's discount rates are assumed exogenous and same for all goods. We examined the validity of this assumption by eliciting the discount rates of households for grass, timber, fuelwood and money, and analyzed the impacts of various personal and economic factors on households' discount rates. We found that time preferences are endogenous and good-specific. A good proportion of households have infinite discount rates for forest goods. The mean values of monthly discount rates, for households that indicated finite discount rates, are 0.67 for timber, 6.83 for fuelwood, 55.49 for grass, and 3.47 for money. The availability of alternative sources and current consumption of the forest goods are two main determinants of a household's discount rates. The study provides many useful insights for the design and implementation of CBFM programs: the concept of “mental accounting” should be used for economic analyses of CBFM programs, different management strategies should be adopted for different forest goods, and alternative sources should be provided to meet the current needs of the households.