Risk aversion and optimal forest replanting: A stochastic efficiency study |
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Authors: | G Lien S Størdal JB Hardaker LJ Asheim |
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Institution: | 1. Eastern Norway Research Institute, Lillehammer, Norway;2. Norwegian Agricultural Economics Research Institute, P.O. Box 8024 Dep., No-0030 Oslo, Norway;3. School of Economics, University of New England, Armidale, Australia |
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Abstract: | A new stochastic efficiency analysis approach, called stochastic efficiency with respect to a function (SERF), is applied to analyse optimal tree replanting on an area of recently harvested forest land. SERF partitions a set of risky alternative tree replanting strategies in terms of certainty equivalents (CEs) for a specified range of attitudes to risk. Both the entailed risk and the forest owner’s risk aversion are taken into account. The forest owner’s degree of risk aversion affects both the optimal tree replacement strategy and the reinvestment decision. The degree of risk aversion also needs to be taken into account when designing policy measures to affect forest investment. |
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Keywords: | Decision analysis Dynamic risk analysis Stochastic budgeting Stochastic dominance with respect to a function Optimal forestry rotation Replacement policy |
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