Tinbergen s famous condition to ensure that multiple objectives are met implies that one generally needs one instrument per objective. Devising environmental policies for forest management is therefore a complex undertaking if one seeks to correct for all the external effects. From a welfare economic perspective one should only correct Pareto relevant externalities. These occur when expected benefits from regulation exceed expected costs, including regulatory costs. Hence, it is not optimal to correct all the external effects from forestry.
Environmental regulations come in many forms.
A recent feature in forestry is environmental requirements brought about by manifistations of consumer demand or retailer requirements. Its gist is that forestry practices need to meet certain minimum criteria for products to gain market access. Thereby, such regulations weed out the worst forest practices. However, one cannot expect that market driven standards provide optimal outcomes as perceived in welfare economics. There are three main reasons for this.