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Endogenous Rate of Time Preference, Traditional Communities, and Sustainable Forest Management

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Type: Working Paper
Author: Kant, Sashi
Date: 1998
URI: https://hdl.handle.net/10535/5591
Sector: Forestry
Subject(s): forest management
indigenous institutions--economics
Abstract: Subsequently published under the same title in the Journal of Social and Economic Development 2(1):65-87. "It is argued that realisation of the difference between natural forests and commercial plantations, and natural capital and human-made capital will suggest the treatment of the rate of time preference as an endogenous factor. A full understanding of the framework of determinants of the rate of time preference will demonstrate that the common understanding of economists that poor people have a high rate of time preference will not withstand the contextual test of forest use by traditional communities. The nature of forest returns, their role in economic and other necessities, specific risk attributes of forest returns, and personal factors examined in the context of forests indicate a lower rate of time preference for returns from forests among traditional communities when compared to returns from forests for industrialized communities. Due to a long time horizon of forest management decisions, the rate of time preference should be treated as a decreasing function of time instead of a constant rate of time preference. The endogenous rate of time preference will have many impacts on sustainable forest management decisions such as forest rotation becoming sensitive to the values of user group, forest management decisions in developing countries becoming independent, to some extent, of international forces, and traditional management systems, based on a low rate of time preference, providing many inputs for designing sustainable forest management practices."

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