Nova workboard

a blog from young economists at Nova SBE

Landowners: Should I invest or should I save now

From the point of view of a landowner, as I am for example, should I invest in October/November in my land so it is prepared for a warm summer? Or should I risk my land and increase the probability of having losses in the summer due to fires? Invest now or save for higher consumption in the future?

My family, as other Portuguese families owns a piece of land in the North of Portugal.  It is a region where only 4 or 5 houses exist, if that much. Most of these houses are from the 19th and XXth century and abandoned. Houses and lands are abandoned because people don’t even know that they own a property, due to lack of information, or if they do know it is very costly/time consuming to maintain such property in shape. The lands may be a source of income, depending on the size, and therefore an incentive to better manage them. The more common option is abandonment, which means no income but also no expenditure. Other possible option is afforestation.

Afforestation can be done by collecting what the property produces and no investment and management are needed. But it can also be done by investing in an intensive management program and therefore the probability of my land surviving to a fire will be higher.

The return on productive land is higher if the withdrawn products have markets with interesting prices and efficiency can come from a better management.

The tricky point here is for me to choose whether I want to take the fire risk, making no management investment today, or investing now to have higher return in the future.

If the risk is high, as it is in most areas with greater forest productive capacity, the option seems to be more rational and manage risk more actively, seeking to adopt management measures to limit the likelihood of fires.

But the risk of fire is not just a function of my management skills, but also management capacity of my neighbors, since most fires do not occur initially within the properties but enter the property from the outside. So either the property is large enough and I can manage the fire with my resources or my investment in management is fairly useless if neighboring properties do not adopt the same management model.

Hence the small owners are conducted for two options: the production of fast-growing products, to increase the probability of collecting production before the next fire, and a softer management program, with less investment but much smaller risk (since there is no investment).

If all responsibly run more intensely their properties, the return was higher, the lower the risk of fire and thereby more efficient production.

But if one does, will tend to push up their costs without the risk decreases and the probability of loss increases significantly.

Solutions might be found in two ways: 1) aggregate economic units in order to have bigger areas so fire can be managed, with higher intensity, in a sustainable way, (this is the pulp companies approach); 2) Find ways to manage fuel in a better cost/ benefit relation, namely prescribed fires or targeted grazing.

Francisca 680

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Author: studentnovasbe

Master student in Nova Sbe

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