Shadow Pricing Ecosystem Services in Boreal Forests

Boreal forests jointly produce marketed goods and non-market ecosystem services, generating unavoidable trade-offs. We estimate shadow prices with the directional distance function (R. G. Chambers et al. 1996), endogenizing the directional vector and correcting for sampling variation via bootstrap methods. Using a county-by-year panel of Swedish forests, we find that shadow prices vary spatially and temporally yet remain generally low, implying modest opportunity costs for improving biodiversity and carbon sequestration relative to timber. Morishima elasticities further characterize substitution possibilities and least-cost paths to better environmental outcomes. The results indicate unexploited scope for conservation policy in boreal systems.