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Private, market-related activities.
Some forest-based market-related activities are already included in the national income accounts; examples are all forest products used in manufacturing (logging, lumber production, the manufacture of paper, wooden furniture, and musical instruments). Some fuel wood production would fall into this category; the part that flows through the market economy would enter the accounts, while the part that is produced for own consumption would not.
The major issue in the current treatment of private, marketed forest-based goods and services is the failure to account for changes in the value of the standing timber. Most of the conceptual problems involved in doing so have been fully considered and developed, as discussed below. Accounting for changes in the timber inventory would address one of the major shortcomings of the existing forest accounts.
Private goods not traded in markets.
Forests produce many private goods and services that—for reasons of custom, law, or economics—society has elected not to allocate through markets.7 For example, the water flowing from forested watersheds has considerable economic value. Indeed, the rationale for forest conservation in the late nineteenth century related primarily to protection of forested upland watersheds. Protection of navigation was the explicit constitutional basis for creation of the eastern national forests, and congressional agricultural interests concerned about irrigation provided the principal support for withdrawing the national forests from the western public-domain lands. A study by Bowes et al. (1984) of the Front Range of the Rockies around Denver and informal estimates for the Quabbin Watershed servicing Boston demonstrate that in some locations, the value of the water produced from a forest may far exceed the value of the timber production. Changes in forest attributes can affect stream flow and therefore the value of water ''produced." Interestingly, Bowes et al. (1984) demonstrate that when water is valuable, it is optimal to keep timber stocks low to reduce evapotranspiration and therefore increase runoff.
Public goods are ones for which consumption by one individual does not reduce the amount available for others to consume. Forests produce many public goods, including aesthetically pleasing landscapes, a carbon sink, and a store of biological diversity. Given data on changes in forest inventories, it may be possible to value some of these services (e.g., the value of carbon sequestration), although the uncertain-
Because of the decision not to use markets in allocating such resources, but typically to provide them through collective decisions, common usage sometimes refers to such goods and services as "public goods." This report follows the conventional definitions of public and private goods discussed in the previous section.