OPTIMAL TIMING OF SALVAGE HARVEST IN RESPONSE TO A STOCHASTIC INFESTATION

Abstract Following a catastrophic disturbance, forest managers may choose to perform a salvage harvest to recoup timber losses. When the disturbance process evolves stochastically, a unique option value arises associated with the salvage harvest decision. This option value represents the value of postponing a salvage harvest to gain more information about the disturbance process. This paper uses a real options approach to determine how much of a forested area must be infested to trigger a salvage harvest when the forest provides both timber and nontimber values. Analytical results indicate slower rates of forest recovery will optimally delay a salvage harvest while forested areas with large timber values and where nontimber values are more sensitive to the presence of dead and dying trees should be harvested more immediately. The model is applied to a mountain pine beetle outbreak in Idaho's Sawtooth National Forest using readily available aerial detection survey data.