MULTIPLE USE VALUES AND OPTIMAL STEADY STATE AGE DISTRIBUTIONS

Forest management today, generally, focuses not only on wood values but also on the many other amenities and services provided by growing forests. The significance of these multiple use values was recognized by Hartman [1976] who derived a formula for the optimal rotation for a single stand when the services provided by the stand throughout its life are considered in addition to the value of the final harvest. Some more recent work has focused on the case of multiple stands where the amenity values at a point in time depend on the age distribution of the stands at that time. One approach to harvesting multiple stands for wood values alone is the forestry maximum principle developed by Heaps [1984] and Wan [1985]. It will be shown here how the forestry maximum principle can be modified to incorporate the amenity services provided by the growing forest. The optimal steady state age distributions for the multiple stand forest can then be identified and described with the help of Hartman's rotation formula.     

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.     

ENVIRONMENTAL AND FINANCIAL SUSTAINABILITY OF FOREST MANAGEMENT PRACTICES

One of the guiding themes for forest management policy throughout much of North America is sustained yield. The basic premise behind this theme is that a constant or nondeclining flow of services from the forest is socially desirable. Unfortunately, the act of capturing the benefits of this service (timber harvesting) often has detrimental effects on the timber-productive capacity of a forest site. This paper presents a dynamic program that is used to determine the optimal harvest system choice for a timber stand described by average piece size, stand density, a measure of site quality, and stumpage value. The harvest systems are defined by logging costs, reforestation and rehabilitation costs, and the impact of the system on the productivity of the site. An application of the model is presented for lodgepole pine in Alberta. We conclude that, at high discount rates, soil conservation is not economically rational. At lower discount rates, some degree of soil conservation is desirable on the more productive sites. At lower discount rates, there also appears to be an incentive for more intensive forest management. Limitations on acceptable harvest practices can have a large impact on optimal rotation age and the volume harvested. There is a large opportunity cost resulting from a requirement for sustainable volume production because of the impact of harvesting on soil productivity.     

THE ROLE OF STOCHASTIC MONOTONICITY IN THE DECISION TO CONSERVE OR HARVEST OLD-GROWTH FOREST

The problem of when, if ever, a stand of old-growth forest should be harvested is formulated as an optimal stopping problem, and a decision rule to maximize the expected present value of amenity services plus timber benefits is found analytically. This solution can be thought of as providing the “correct” way in which cost-benefit analysis should be carried out. Future values of amenity services provided by the standing forest and or timber are considered to be uncertain and are modeled by Geometric Poisson Jump (GPJ) processes. This specification avoids the ambiguity which arises with Geometric Brownian Motion (GBM) models, as to which form of stochastic integral (Itô or Stratonovich) should be employed, but more importantly allows for monotonic (yet stochastic) processes. It is shown that monotonicity (or lack of it) in the value of amenity services relative to timber values plays an important part in the solution. If amenity values never go down (or never go up) relative to timber values, then the certain-equivalence cost-benefit procedure provides the optimal solution, and there is no option value. It is only to the extent that the relative valuations can change direction that the certainty-equivalence procedure becomes sub-optimal and option value arises.     

A Class of Solvable Impulse Control Problems

We consider a class of stochastic impulse control problems where the controlled process evolves according to a linear, regular, and time homogeneous diffusion. We state a set of easily verifiable sufficient conditions under which the problem is explicitly solvable. We also state an algebraic equation from which the optimal impulse boundary can be determined and, given this threshold, we present the value of the optimal policy in terms of the minimal increasing r-excessive mapping for the controlled diffusion. We also consider the comparative static properties of the optimal policy and state a set of typically satisfied conditions under which increased volatility unambiguously increases the value of the optimal policy and expands the continuation region where exercising the irreversible policy is suboptimal. We also illustrate our results explicitly in two models based on geometric Brownian motion.     

Optimal harvest strategy for even‐aged stands with price uncertainty and risk of natural disturbances

We present a reservation price model to examine the joint impacts of natural disturbances and stumpage price uncertainty on the optimal harvesting decision for even‐aged forest stands. We consider a landowner who manages a loblolly pine stand to produce timber and amenities, under age‐dependent risk of wildfires and uncertainty in future timber prices. We show that the incorporation of risk of wildfires decreases the optimal reservation prices. The inclusion of risk of wildfires leads to lower land values and reduces the mean harvest age compared with the case of no‐risk of wildfires. Higher economic gains are obtained with the reservation price strategy compared with the deterministic rotation age model—a difference in the land value of $2,326 ha^?1 (21%) between the two approaches. Recommendations for Resource Managers

• Our adaptive harvest strategy shows that the incorporation of risk of wildfires decreases the optimal reservation prices compared with the case of no‐risk of wildfires.
• Low reservation prices—a price that makes the landowner indifferent between harvesting or waiting longer—result in lower economic benefits for landowners and potential conversions of lands to nonforest use.
• Forest management practices oriented to reduce the effects of catastrophic disturbances, for example, creating a more complex forest structure with different stand densities, become imperative to ensure the sustainability of forestlands in the US South.
• Our analysis also suggests that the valuation of forestry investments should consider not only the risk of catastrophic events but also uncertainty in future timber prices. Higher appraisals of land value are obtained when timber price uncertainty is explicitly recognized, providing financial incentives for landowners to invest in forestry.

     

A PARTIAL DIFFERENTIAL EQUATION MODEL OF OPTIMAL FOREST HARVESTING

A control theoretic model of Davidson and Hellsten is described, in which the state is the continuous age density function of a forest. Optimal harvesting strategies are determined and extensions given to allow for amenity values and the dependence of price on harvesting rate.     

Ordered Site Access and Optimal Forest Rotation

The ordered-site-access model of forest harvesting formulated for once-and-for-all forests in [7] is extended to the case of ongoing forests. The economic content of the corresponding optimal harvest schedule is delineated. For an infinite harvest sequence, the optimal schedule is shown to include the classical Faustmann rotation as a special case, and the effect of net revenue functions changing with harvest is studied. For the practically more important case of planning for a finite sequence of [INLINEEQUATION] harvests, the optimal harvest schedule is determined for a Faustmann environment with limited, and unlimited harvesting capacity, and its rapid convergence to the Faustmann rotation is shown for the case of unlimited harvesting capacity. The case of harvest cost functions varying with harvest rate is discussed. The existence of a steady-state optimal harvesting schedule (involving a pathwise uniform age distribution) for the more realistic Heaps-Neher environment and its relation to the Faustmann rotation are analyzed. The evolution of the optimal harvest schedule for a finite harvest sequence in a Heaps-Neher environment toward this steady-state (Faustmann type) rotation is demonstrated.     

The optimal harvesting problem under price uncertainty

In this paper we study the exploitation of a one species forest plantation when timber price is governed by a stochastic process. The work focuses on providing closed expressions for the optimal harvesting policy in terms of the parameters of the price process and the discount factor, with finite and infinite time horizon. We assume that harvest is restricted to mature trees older than a certain age and that growth and natural mortality after maturity are neglected. We use stochastic dynamic programming techniques to characterize the optimal policy and we model price using a geometric Brownian motion and an Ornstein–Uhlenbeck process. In the first case we completely characterize the optimal policy for all possible choices of the parameters. In the second case we provide sufficient conditions, based on explicit expressions for reservation prices, assuring that harvesting everything available is optimal. In addition, for the Ornstein–Uhlenbeck case we propose a policy based on a reservation price that performs well in numerical simulations. In both cases we solve the problem for every initial condition and the best policy is obtained endogenously, that is, without imposing any ad hoc restrictions such as maximum sustained yield or convergence to a predefined final state.     

MODELING CATASTROPHIC RISK IN ECONOMIC ANALYSIS OF FOREST CARBON SEQUESTRATION

ABSTRACT. The effect of risk from catastrophic tree mortality, such as fire, insect outbreaks and hurricanes, on selling credits for carbon sequestration from a slash pine plantation is modeled. We achieve this task by developing a modified Hartman model and applying it to a slash pine plantation. It is found that risk decreases the land expectation value and the optimal rotation age on a forest stand producing timber and carbon sequestration benefits. This decrease is greater with higher prices of carbon. Furthermore, risk increases the amount of pulpwood produced from the stand and decreases the amount of sawtimber produced. Since pulpwood has a shorter life span than sawtimber this reduces the amount of carbon sequestered. This effect is greater for higher prices of carbon suggesting that risk dampens the effect that a carbon market would have in inducing landowners to sequester more carbon.     

A BIOECONOMIC APPROACH TO THE FAUSTMANN–HARTMAN MODEL: ECOLOGICAL INTERACTIONS IN MANAGED FOREST

Abstract This paper develops a bioeconomic forestry model that makes it possible to take ecosystem services that are independent of the age structure of trees into account. We derive the Faustmann–Hartman optimal harvesting strategy as a special case. The bioeconomic model is then extended to account for the fact that forest harvesting decisions impact on other ecological resources, which provide benefits for the wider community. The paper focuses on impacts associated with disturbance caused by logging operations and habitat destruction due to tree removal. This enables us to explore the interactions between forest management and the dynamics of ecological resources. The optimal rotation rule is obtained as a variation on the traditional Faustmann–Hartman equation, where an additional term captures the potential benefits derived from the growth of the ecological resource valued at its shadow price. The steady‐state solutions to the problem and sensitivity to model parameter are identified using numerical analysis.     

OPTIMAL FOREST STAND MANAGEMENT WHEN BENEFITS ARE DERIVED FROM CARBON

The management of second-growth and old-growth forest stands has important implications for the global carbon cycle. This paper considers the optimal forest rotation when flows of CO₂ to carbon have positive value. If benefits are derived only from carbon, then typically it will never be optimal to harvest any forest stands. This result is a formalization and extension of Harmon et al. [1990]. Private forest owners will often maximize net returns to timber, ignoring benefits from carbon sequestration. Thus, the privately and socially optimal rotations will not generally coincide. We show that the socially optimal rotation is always greater than the privately optimal rotation and less than or equal to the rotation when only carbon is valued.     

Optimal threshold probability and expectation in semi-Markov decision processes

We consider undiscounted semi-Markov decision process with a target set and our main concern is a problem minimizing threshold probability. We formulate the problem as an infinite horizon case with a recurrent class. We show that an optimal value function is a unique solution to an optimality equation and there exists a stationary optimal policy. Also several value iteration methods and a policy improvement method are given in our model. Furthermore, we investigate a relationship between threshold probabilities and expectations for total rewards.     

Harvesting of a phytoplankton–zooplankton model

Considering that some phytoplankton and zooplankton are harvested for food, a phytoplankton–zooplankton model with harvesting is proposed and investigated. First, stability conditions of equilibria and existence conditions of a Hopf-bifurcation are established. Our results indicate that over exploitation would result in the extinction of the population and an appropriate harvesting strategy should ensure the sustainability of the population which is in line with reality. Furthermore, the existence of bionomic equilibria and the optimal harvesting policy are discussed. The present value of revenues is maximized by using Pontryagin’s maximum principle subject to the state equations and the control constraints. We discussed the case of optimal equilibrium solution. It is found that the shadow prices remain constant over time in optimal equilibrium when they satisfy the transversality condition. It is established that the zero discounting leads to the maximization of economic revenue and that an infinite discount rate leads to complete dissipation of economic rent. Finally, some numerical simulations are given to illustrate our results.     

Sliding and oscillations in fisheries with on–off harvesting and different switching times

In this paper, we propose a fishery model with a discontinuous on–off harvesting policy, based on a very simple and well known rule: stop fishing when the resource is too scarce, i.e. whenever fish biomass is lower than a given threshold. The dynamics of the one-dimensional continuous time model, represented by a discontinuous piecewise-smooth ordinary differential equation, converges to the Schaefer equilibrium or to the threshold through a sliding process. We also consider the model with discrete time impulsive on–off switching that shows oscillations around the threshold value. Finally, a discrete-time version of the model is considered, where on–off harvesting switchings are decided with the same discrete time scale of non overlapping reproduction seasons of the harvested fish species. In this case the border collision bifurcations leading to the creations and destruction of periodic oscillations of the fish biomass are studied.     

The optimal harvesting policy for non-autonomous populations with discount

Infinite horizon and non-autonomous optimal harvesting problems with discounted instantaneous utility are considered in this work. We first show that the optimal harvesting policy exists for a class of single populations by using the maximum principle. Second, the explicit expressions for the optimal harvesting policy and the maximum yields of logistic, Gompertz and Gilpin–Ayahs systems are obtained.     

Time-dependent and independent control rules for coordinated production and pricing under demand uncertainty and finite planning horizons

We address the effect of uncertainty on a manufacturer’s dynamic production and pricing decisions over a finite planning horizon. The demand for products, which depends on their price, is characterized by two stochastic processes: potential demand and customer price sensitivity. An optimal policy for coordinating production and pricing is a time-dependent feedback rule with respect to the state of the manufacturer’s inventories. We show that when the volatility of customer sensitivity to the product price is negligible, the optimal policy can be obtained analytically. Moreover, our simulations demonstrate that the volatility of stochastic customer price sensitivity does not have a strong effect on the manufacturer’s expected profit. Therefore, the solution derived for the case of customer price sensitivity with zero volatility can serve as a good approximation heuristic for the optimal policy if the true volatility of customer price sensitivity is within 40 % of its mean and the volatility of potential demand is within 25 % of its mean. Moreover, under these conditions, a simplified, time-independent control rule deteriorates expected profits by only 1.5 %.     

CONTROL OF A METAPOPULATION HARVESTING MODEL FOR BLACK BEARS

ABSTRACT. We develop a metapopulation harvesting model that includes density‐dependent immigration and emigration and apply Pontryagin's maximum principle to derive an optimal harvesting and reserve design strategy. The model is designed to mimic the black bear population of eastern Tennessee and western North Carolina. Model results suggest that a forest region's population can be maintained despite high harvest levels due to emigration from a connected, un‐harvested park region. The amount of shared border between the park and forest region is important in determining the optimal harvesting strategy. This technique offers new insight on the spatial control of protected populations.     

Viability analysis for the sustainable management of renewable resources

We consider an age-structured discrete time modeling of a renewable resource, controlled by the harvesting of the mature class. A harvesting policy is considered to be sustainable if a minimum harvesting threshold can be guaranteed at any time, taking into account availability constraints. For the characterization of such policies, viability analysis reveals the intrinsic compatibility of the dynamics within a given threshold. Formulae for the maximal sustainable threshold that can be maintained by the resource, viability kernels and the set of corresponding sustainable feedbacks are obtained. We then propose explicit management rules, maximizing the sustainable threshold, and illustrate them with numerical simulations for two kinds of resources.