A strategy for multiproduct stand management with uncertain future prices

This paper presents a strategy for stand management with multiple series of stochastic prices. When the only decision is to reject or accept a set of prices for a clearcut, the strategy is to accept and clearcut in the current period if the revealed revenue is at least as large as the current reservation revenue. This strategy is shown to be optimal when the price process is stationary and temporarily independent with the possibility of cross-product price dependence. Simulation involving red pine yields separated into two products, pulp and sawtimber, show the reservation revenue harvest strategy is far more consistent with current management practice than previous analyses involving a single product, sawtimber, have indicated. The probability distribution of optimal rotation ages is similar to a series of exponential (also called 'waiting time') distributions with new peaks at each major ingrowth event in the multiproduct yield function. The financial implications of considering pulp and sawtimber price uncertainty simultaneously are also addressed.