Summary: The authors critically review the literature on the net domestic (within-country) economic benefits of protecting tropical forests, focusing on hydrological benefits and the production of nontimber forest products. (The review does not consider other important classes of benefits, including global benefits of all kinds, ecological benefits which do not have instrumental economic value, and the existence value of forests.) Their main conclusions: (1)The level of net domestic benefits from forest preservation is highly sensitive to the alternative land use and to local climatic, biological, geological, and economic circumstances. When the alternative use is agroforestry or certain types of tree crops, the preservation of natural forests may yield no instrumental domestic benefits. (2)The hydrological benefits from forest preservation are poorly understood and likely to be highly variable. They may also be fewer than popularly assumed: Deforestation has not been shown to be associated with large-scale flooding. Tropical deforestation is generally associated with higher, not lower, dry season flows. Although it is plausible that deforestation should affect local precipitation, the magnitude and even the direction of the effects are unknown, except in the special case of cloud forests that "harvest" passing moisture. The link between deforestation and downstream sediment damage is sensitive to the basic topography and geology. Where sediment transport is slow - as in large, low-gradient basins - downstream impacts may manifest themselves in the distant future, so that the net present value of damage is small. Steep basins near reservoirs or marine fisheries, on the other hand, can cause substantial damage if land cover is severely disturbed. But only a few pioneering studies have examined the economics of reservoir sedimentation, and improved models of both sediment transport and dam function are needed. (3) The most impressive point estimates of forest value based on nontimber forest products are often based on atypical cases of faulty analysis. Where domesticated or synthetic substitutes exist, the nontimber forest product-related rents for natural forests will usually be driven toward zero.
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