Timber harvesting with fluctuating prices

Richard Brazee, Robert Mendelsohn

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Because of volatility in demand, timber prices tend to fluctuate from year to year. Timber owners know today's price but are uncertain about tomorrow's prices. Traditional Faustmann harvesting ignores these random annual price fluctuations and prescribes harvests on the basis of expected prices. In this paper, we adapt an asset sale model to forestry and solve for the optimal schedule of reservation prices. When current price is above the reservation price, owners should cut that age class, otherwise they should wait another year. This flexible price harvest policy significantly increases the present value of expected returns over the more rigid Faustmann model.

Original languageEnglish (US)
Title of host publicationEconomics of Forestry
PublisherTaylor and Francis Inc.
Pages175-188
Number of pages14
ISBN (Electronic)9781315182681
ISBN (Print)9781138741775
StatePublished - Feb 6 2018
Externally publishedYes

Keywords

  • Asset sale model
  • Douglas-fir
  • Dynamic programming
  • Forest management
  • Loblolly pine
  • Price uncertainty

ASJC Scopus subject areas

  • Social Sciences(all)

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