Date of Award:

5-1985

Document Type:

Dissertation

Degree Name:

Doctor of Philosophy (PhD)

Department:

Economics and Finance

Department name when degree awarded

Economics

Committee Chair(s)

Donald L. Snyder

Committee

Donald L. Snyder

Committee

Basudeb Biswas

Abstract

The existing literature determining the optimal rotation period of a forest stand under conditions of certainty, as well as under uncertainty, lacks the genera 1 scope to be useful. A forest provides timber of commercial value, a flow of recreational services, and other valuable environmental services. Providing goods and services involves benefits as well as costs. Relevant management decisions depend on the net values that can be obtained. The present work developes a more general model for determining an optimal rotation period incorporating various fixed and variable costs associated with timber production and recreational services in an environment of certainty and uncertainty. It is shown that under certainty, the optimal rotation period is likely to be finite and depending on the values of benefits and costs the rotation period indicated by the solution of this model may be identical to, shorter, or longer than that indicated by a model ignoring net values. In addition, a generalized Faustmann rule under certainty (when only recreational value i s added to the model ) using optimal control (maximum principle) as the analytical tool has been developed and the impact of two sources of uncertainties on the optimal rotation decision in the context of the more generalized model is analyzed. They are (1) uncertainty related to future stumpage price, and (2) uncertainty related to the future stock of trees due to unpredictable natural catastrophes. Under price uncertainty the optimal rotation period will be longer than that under conditions of certainty if the forest operator is risk averse. In addition, the period wi ll be lengthened with increasing risk and shortened with increasing expected stumpage price under nonincreasing absolute risk aversion of the forest operator. The risk of catastrophic destruction of the biomass whether total or partial will lead to a rotation period dependent on the value of the average rate of occurrence of catastrophes.

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