Financial viability of natural forest management in Bolivia: environmental regulation and the dissipation and distribution of profits

Following recent changes in the Bolivian Forest Law, there has been considerable debate about the financial viability of natural forest management in Northern Bolivia. We compare the returns to timber extraction for a number of forest management regimes, finding that the cost for private parties of meeting the recently imposed sustainable forest management requirements is significant. While still profitable (i.e. earning positive rates of return), sustainable forest management is clearly less profitable than traditional logging practices. Indeed, the net present value per hectare is depressed to such low levels that forests are unlikely to earn competitive rates of return, so that future conversion or misuse of forestlands may be feared. Finally, implications of the new forest law for the distribution of the resource rent between firm and government are discussed. Our results indicate that historic patterns of incomplete rent capture by the government have effectively been reversed, and that many firms will not be able to earn ‘normal profits’ under the new regime.