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The equilibrium price path of timber in the absence of replanting: does Hotelling rule the forests too?

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  • Salant, Stephen W.

Abstract

Prior to 1985, virtually all analyses of forestry economics took the price of timber as given. Since Mitra and Wan (1985), however, the literature has sought to solve social planning problems where the price of timber, as reflected in the path of the marginal utility of consumption, is endogenous. The purpose here is to focus directly on the equilibrium price path of timber under the stringent assumption that once a site is cleared, no new tree is planted and the site is used for some other purpose with an exogenously specified value. While extreme, this assumption permits us to show that familiar results from the Hotelling literature have their counterparts in forestry economics. The paper begins by describing the equilibrium price path if all trees are the same age and sit on sites of equal value. This turns out to generate a U-shaped price path under some circumstances. Heterogeneity is then introduced. It is shown that if trees differ only in site value, then in the competitive equilibrium it is optimal to extract the last tree on a more valuable site before extracting the first tree on a less valuable site. It is also shown that if trees differ only in their initial age, then in equilibrium, it is optimal to extract the last older tree before extracting the first younger tree. In short, the inisights of Hotelling (1931) and Herfindahl (1967) are shown to extend. As the concluding section suggests, some of these results reappear in special cases of the model with replanting.

Suggested Citation

  • Salant, Stephen W., 2013. "The equilibrium price path of timber in the absence of replanting: does Hotelling rule the forests too?," Resource and Energy Economics, Elsevier, vol. 35(4), pages 572-581.
  • Handle: RePEc:eee:resene:v:35:y:2013:i:4:p:572-581
    DOI: 10.1016/j.reseneeco.2012.09.003
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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. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
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    4. Salo, Seppo & Tahvonen, Olli, 2003. "On the economics of forest vintages," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1411-1435, June.
    5. Tapan Mitra & Henry Y. Wan, 1985. "Some Theoretical Results on the Economics of Forestry," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 263-282.
    6. Salo, Seppo & Tahvonen, Olli, 2002. "On Equilibrium Cycles and Normal Forests in Optimal Harvesting of Tree Vintages," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 1-22, July.
    7. David Levhari & Robert S. Pindyck, 1981. "The Pricing of Durable Exhaustible Resources," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 365-377.
    8. 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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    Citations

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    Cited by:

    1. Fabbri, Giorgio & Faggian, Silvia & Freni, Giuseppe, 2015. "On the Mitra–Wan forest management problem in continuous time," Journal of Economic Theory, Elsevier, vol. 157(C), pages 1001-1040.
    2. Julien Daubanes & Pierre Lasserre, 2019. "The supply of non-renewable resources," Canadian Journal of Economics, Canadian Economics Association, vol. 52(3), pages 1084-1111, August.
    3. Julien DAUBANES & Pierre LASSERRE, 2014. "Dispatching after Producing : The Supply of Non-Renewable Resources," Cahiers de recherche 13-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    4. Silvia Faggian & Giuseppe Freni, 2015. "A Ricardian Model of Forestry," Working Papers 2015:12, Department of Economics, University of Venice "Ca' Foscari", revised 2015.

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    More about this item

    Keywords

    Forestry; Hotelling; Herfindahl;
    All these keywords.

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

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