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Risk Management Behavior of a Forest Owner to Address Growth Risk

Author

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  • Brunette, Marielle
  • Couture, Stéphane

Abstract

We analyze risk management behavior (financial savings versus physical savings) of a private forest owner who values amenities in relation to uncertainty about timber growth. In a two-period model, we study the properties of optimal current and future harvesting and risk management decisions. We show that the forest owner chooses the tool with the highest rate of return unless both risk management instruments are perfect substitutes. We prove that future harvesting is greater under physical savings than under financial savings. Comparative static results on amenity preferences, incomes, forest stocks, timber prices, and opportunity costs are investigated.

Suggested Citation

  • Brunette, Marielle & Couture, Stéphane, 2013. "Risk Management Behavior of a Forest Owner to Address Growth Risk," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(2), pages 1-16, August.
    • Handle: RePEc:ags:arerjl:155526
    DOI: 10.22004/ag.econ.155526
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    Cited by:

    1. Marielle Brunette & Stephane Couture, 2018. "Risk management activities of a non-industrial privateforest owner with a bivariate utility function," Review of Agricultural, Food and Environmental Studies, INRA Department of Economics, vol. 99(3-4), pages 281-302.
    2. Sauter, Philipp A. & Mußhoff, Oliver & Möhring, Bernhard & Wilhelm, Stefan, 2016. "Faustmann vs. real options theory – An experimental investigation of foresters’ harvesting decisions," Journal of Forest Economics, Elsevier, vol. 24(C), pages 1-20.
    3. Sauter, Philipp A. & Möllmann, Torsten B. & Anastassiadis, Friederike & Mußhoff, Oliver & Möhring, Bernhard, 2016. "To insure or not to insure? Analysis of foresters' willingness-to-pay for fire and storm insurance," Forest Policy and Economics, Elsevier, vol. 73(C), pages 78-89.
    4. Brunette, M. & Holecy, J. & Sedliak, M. & Tucek, J. & Hanewinkel, M., 2015. "An actuarial model of forest insurance against multiple natural hazards in fir (Abies Alba Mill.) stands in Slovakia," Forest Policy and Economics, Elsevier, vol. 55(C), pages 46-57.
    5. Sandrine Spaeter, 2021. "How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage," Working Papers of BETA 2021-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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