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Could the Faustmann model have an interior minimum solution?

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  • Gong, Peichen
  • Löfgren, Karl-Gustaf

Abstract

The growth of an even-aged stand usually follows a S-shaped pattern, implying that the growth function is convex when stand age is low and concave when stand age is high. Given such a growth function, the Faustmann model could in theory have multiple optima and hence an interior local minimum solution. To ensure that the rotation age at which the first derivative of the land expectation value equals zero is a maximum, it is often assumed that the growth function is concave in stand age. Yet there is no convincing argument for excluding the possibility of conducting the final harvest before the growth function changes to concave. We argue that under normal circumstances the Faustmann model does not have any interior minimum. It is neither necessary nor proper to assume that the growth function is concave in the vicinity of the optimal rotation age. When the interest rate is high, the optimal rotation may lie in the interval on which the growth function is convex, i.e. before volume or value growth culminates.

Suggested Citation

  • Gong, Peichen & Löfgren, Karl-Gustaf, 2016. "Could the Faustmann model have an interior minimum solution?," Journal of Forest Economics, Elsevier, vol. 24(C), pages 123-129.
    • Handle: RePEc:eee:foreco:v:24:y:2016:i:c:p:123-129
    DOI: 10.1016/j.jfe.2016.06.001
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    References listed on IDEAS

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    1. Gregory S. Amacher & Markku Ollikainen & Erkki A. Koskela, 2009. "Economics of Forest Resources," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012480, December.
    2. Samuelson, Paul A, 1976. "Economics of Forestry in an Evolving Society," Economic Inquiry, Western Economic Association International, vol. 14(4), pages 466-492, December.
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    Cited by:

    1. Petri P Kärenlampi, 2019. "Wealth accumulation in rotation forestry – Failure of the net present value optimization?," PLOS ONE, Public Library of Science, vol. 14(10), pages 1-19, October.
    2. Susaeta, Andres & Adams, Damian C. & Gonzalez-Benecke, Carlos, 2017. "Economic vulnerability of southern US slash pine forests to climate change," Journal of Forest Economics, Elsevier, vol. 28(C), pages 18-32.

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    More about this item

    Keywords

    Forest economics; Optimal rotation age; S-shaped growth curve;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land

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