OPTIMAL HARVESTING OF FOREST AGE CLASSES UNDER PRICE UNCERTAINTY AND RISK AVERSION

ABSTRACT. . We analyze optimal forest harvesting under mean reverting and random walk timber price and include multiple age classes, forest owners' consumption‐savings decisions and risk aversion. This framework generalizes existing studies that assume a single stand and risk neutrality or include ad hoc risk aversion and obtain the result that uncertainty lengthens the optimal rotation. Including planting cost implies that price stochasticity may shorten the rotation period. Under the mean reverting price process, optimal harvesting becomes more sensitive to periodic price level, as compared to the random walk case. Including risk aversion completely changes the harvesting policy in the sense that, if the forest initially consists of just one age class, it is optimal to smooth the age class structure and have more frequent cuttings from younger age classes. With risk aversion, optimal cuttings depend on price level, even under a random walk price and zero replanting and harvesting costs. In addition, harvesting decisions become dependent on subjective time preference and forest owners' wealth.     

OPTIMAL CHOICE BETWEEN EVEN‐ AND UNEVEN‐AGED FORESTRY

Abstract Existing optimal rotation models include even‐aged management exogenously into the model structure. As an economic model, this Faustmann framework is restrictive, and a more general model should not include any such preconditions. Even‐aged management should follow endogenously as an optimal solution if it proves out to be superior to other systems, such as uneven‐aged management. Without such a general model, the economically optimal choice between even‐aged and uneven‐aged forestry remains somewhat arbitrary. This study specifies such a model and shows how even‐aged management follows endogenously and reveals what factors work in favor of each management alternative. Numerical analysis shows that even‐ and uneven‐aged systems may represent locally optimal solutions and may yield equal economic outcomes. Instead of the usual comparative statics results of the Faustmann model, changes in the rate of discount, timber price, or planting cost may imply that the optimal solution shifts from even‐ to uneven‐aged management.     

HARVESTING AN AGE‐STRUCTURED POPULATION AS BIOMASS: DOES IT WORK?

Abstract The economics of fisheries is based heavily on describing fish populations by the surplus production model. Both economists and ecologists have different opinions on whether this approach provides an adequate biological basis for economic analysis. This study takes an age‐structured population model and shows how, under equilibrium conditions, it determines the surplus production model. The surplus production model is then used to solve an optimal feedback policy for a generic optimal harvesting problem. Next, it is assumed that the fishery manager applies this feedback policy even though the fish population actually evolves according to the age‐structured model. This framework is applied to the widow rockfish, Atlantic menhaden, and Pacific halibut fisheries. Population age‐structure contains information on future harvest possibilities. The surplus production model neglects this information and may lead to major deviations between the expected and actual outcomes especially under multiple steady states and nonlinearities.