This paper focuses on how to optimally conserve and use forestland subject to the limited land area, by assuming that total land area can be alternatively used ether for agricultural land or forestland. The optimal distribution between the two kinds of land use is analyzed by optimal control theory.
It is one of the major results of this paper that when the social benefit explicitly accepted is only stemmed from the outputs of both agriculture and forestry sectors, there is no optimal control plan towards the steady state. However, as far as the benefit from forestland stock like an environmental benefit is added to the social welfare function, then the optimal control plans towards the steady state can be feasible. Moreover it is also proved that when the social planner underestimates the intrinsic environmental value of forestland, the forestland area tends to be smaller in the steady state.
In the view of land policy, it is very natural to mention to the tax procedure levied on the profit from timbering in order to avoid the de-forestation. In the case where the tax is levied on the agricultural land stock, or the subsidy is paid for the forestland stock, the optimal control plans can be attained. It is also proved that the more is the land tax on agricultural sector or the subsidy for forestry sector, the more is the forestland area in the steady state.
