Raymond K. Omwami

An economic model underlying the choice of capital intensity in timber production

Omwami R. K. (1988). An economic model underlying the choice of capital intensity in timber production. Acta Forestalia Fennica no. 204 article id 7651. https://doi.org/10.14214/aff.7651

Abstract

The process of capital accumulation in timber production has been examined in this study. A detailed explanation of new investment in forest industry in terms of productive capacity as the determinant of national forest policy target growing stock and silviculture is presented. The basis of the explanation of forest industry productive capacity was a linear vertically integrated input-output production model. The model was used to derive a macroeconomic equilibrium condition specifying forest sector aggregate demand as an integral part of the national economy. Timber production has been constructed as a state variable system and the Maximum Principle used to derive silvicultural investment criterion. The derivation of the investment criterion was formulated as a dynamic problem in a labour surplus economy with linkage between savings and choice of silvicultural technology defined via income distribution between wages and profit. Maximization of aggregate consumption was specified as the goal of timber production.

By assuming a state of sub-optimal savings rate, it is shown that the real cost of labour is not zero in a labour surplus economy. Because unemployment labour is not a free commodity, it is concluded that capital-intensive silvicultural technology represents an optimal means of maximizing aggregate consumption in labour surplus economy, contrary to the recommendation of social marginal productivity theory.

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Keywords
technology; population; intensive silviculture; vertical integration production; consumer’s preferences

Published in 1988

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