Stumpage Price Uncertainty and the Optimal Rotation of a Forest: An Application of Sandmo Model

Document Type

Article

Journal/Book Title/Conference

Journal of Environmental Systems

Volume

17

Issue

4

Publication Date

1987

First Page

305

Last Page

313

Abstract

The Faustmann model has played a key role in the determination of the optimal forest rotation. Faustmann developed a simple and deterministic competitive economic model, the objective of which was to maximize the present value of perpetual returns to the fixed factor, a unit of timberland [1]. The optimal rotation problem thus viewed is a timber management problem abstracting from any environment of uncertainty. This article considers an alternative model formulation that treats a forest resource operated under conditions of stumpage price uncertainty and forest owners with risk aversion. A modified Faustmann- type rule under conditions of stumpage price uncertainty is developed based on the theory of a competitive firm under price uncertainty developed by Sandmo [2]. The Sandmo model is then used to investigate the effects of an increasing risk on the optimal rotation age.

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