Stumpage Price Uncertainty and the Optimal Rotation of a Forest: An Application of Sandmo Model
Journal of Environmental Systems
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 . 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 . The Sandmo model is then used to investigate the effects of an increasing risk on the optimal rotation age.
Bhattacharyya, R.N., and D.L. Snyder. Stumpage Price Uncertainty and the Optimal Rotation of a Forest: An Application of Sandmo Model. Journal of Environmental Systems 17(4, 1987-88): 305-13. Baywood Publishing Co., Inc.