Pricing the social contract in the British Columbian forest sector Kurt Niquidet, Harry Nelson, and Ilan Vertinsky Abstract: In this paper, we investigate the impact of various socioeconomic conditions on the value of timber tenures in the province of British Columbia. Two timber tenure models were created, one for short-term timber sale licenses and the other for longer term forest licenses. The short-term model revealed that timber sales that were awarded according to a combination of employment, revenue, and manufacturing criteria yielded $8.63/m 3 less revenue than timber sales awarded based on revenue alone. Similarly, the long-term model indicates that manufacturing and employment conditions signifi- cantly reduce the bid on forest licenses. In both instances, we suggest that such conditions distort the use of timber, labour, and capital. Therefore, we conclude that recent forest policy changes in the province that removed several of these condi- tions greatly improved economic efficiency. Nevertheless, distribution impacts are likely to be important because resource rents have potentially been redistributed away from rural communities to the provincial government. Re ´sume ´: Dans cet article, nous e ´valuons l’impact de diffe ´rentes conditions socio-e ´conomiques sur la valeur des tenures forestie `res dans la province de la Colombie-Britannique. Deux mode `les de tenure forestie `re ont e ´te ´ cre ´e ´s, un pour les per- mis de coupe de bois (court terme) et un pour les permis d’exploitation forestie `re (long terme). Le mode `le a ` court terme indique que les ventes de bois attribue ´es sur la base d’une combinaison de crite `res d’employabilite ´, de revenu et de trans- formation, ont ge ´ne ´re ´ 8,63 $ / m 3 de moins en revenus que les ventes de bois accorde ´es seulement sur la base du revenu. De la me ˆme fac ¸on, le mode `le a ` long terme indique que les conditions d’employabilite ´ et de transformation diminuent sig- nificativement la demande pour les permis d’exploitation forestie `re. Dans les deux cas, nous croyons que de telles condi- tions nuisent a ` une utilisation rationnelle de la matie `re ligneuse, de la main-d’oeuvre et du capital. Ainsi, nous concluons que les re ´cents changements apporte ´s a ` la politique forestie `re de la province ont contribue ´a ` accroı ˆtre l’efficacite ´e ´conomi- que en e ´liminant plusieurs de ces conditions. Toutefois, les impacts de la re ´partition sont possiblement importants puisque les be ´ne ´fices tire ´s de la ressource pourraient avoir e ´te ´ redistribue ´s loin des communaute ´s rurales au profit du gouvernement provincial. [Traduit par la Re ´daction] Introduction In Canada, forest ownership is predominately held by pro- vincial governments. Each province has created its own unique tenure system that grants harvesting rights to private forest companies. In the largest timber-producing region, British Columbia, there exists a complex array of tenure ar- rangements that vary according to their management respon- sibilities, term, and structure (i.e., area versus volume based). Comprehensive descriptions of each tenure type can be found in numerous sources (van Kooten and Folmer 2004; Luckert and Haley 1990; Cashore et al. 2001) and, therefore, is not repeated in this paper. Prior research has shown that the nature of these arrangements has a significant impact on investments in enhanced silviculture (Zhang and Pearse 1996) and reforestation (Zhang and Pearse 1997), as well as the value of the tenure itself (Zhang 1996). Historically, many timber tenure arrangements in British Columbia, and in Canada for that matter, have been de- signed to meet a variety of socioeconomic goals, such as in- creasing regional employment and value added, as well as providing opportunities for small operators. Collectively, these tenure conditions have been dubbed as being part of a broader ‘‘social contract’’ between forest-dependent com- munities and license holders. However, virtually no work has been done on quantifying the costs or benefits of these various tenure conditions. To a large extent, the lack of work in this area has prob- ably been the result of the inadequate market transactions for timber tenures throughout the country. Tenures in Can- ada are often awarded via bilateral negotiations between in- dustry and government or on the basis of nonprice criteria, and transactions between companies regularly include other assets, making the assessment of the value of tenure on its own difficult. 2 Zhang (1996) notes this restriction, limiting his analysis in British Columbia to the timber license tenure, which is the only tenure that had a sufficient amount of mar- ket transactions. However, timber licenses govern a very small portion of the annual timber harvest in the province, and their award has ceased. Furthermore, unlike many of the other tenures in the province, they are relatively free of employment and manufacturing conditions. Received 5 September 2006. Accepted 13 April 2007. Published on the NRC Research Press Web site at cjfr.nrc.ca on 16 November 2007. K. Niquidet. 1 School of Forestry, University of Canterbury, Private Bag 4800, Christchurch, 8140, New Zealand. H. Nelson and I. Vertinsky. Forest Economics and Policy Analysis (FEPA) Research Unit, University of British Columbia, 2045–2424 Main Mall, Vancouver, BC V6T 1Z4, Canada. 1 Corresponding author (e-mail: kurt.niquidet@canterbury.ac.nz). 2 This was largely due to appurtenancy clauses that tied timber tenures to manufacturing facilities. 2250 Can. J. For. Res. 37: 2250–2259 (2007) doi:10.1139/X07-072 # 2007 NRC Canada