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Forest value and optimal rotations in continuous cover forestry

Author

Listed:
  • Jette Bredahl Jacobsen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Frank Jensen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Bo Jellesmark Thorsen

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

The Faustmann forest rotation model is a celebrated contribution in economics. The model provides a forest value expression and allows a solution to the optimal rotation problem valid for perpetual rotations of even-aged forest stands. However, continuous forest cover forest management systems imply uneven-aged dynamics, and while a number of numerical studies have analysed specific continuous cover forest ecosystems in search of optimal management regimes, no one has tried to capture key dynamics of continuous cover forestry in simple mathematical models. In this paper we develop a simple, but rigorous mathematical model of the continuous cover forest, which strictly focuses on the area use dynamics that such an uneven-aged forest must have in equilibrium. This implies explicitly accounting for area reallocation and for weighting the productivity of each age class by the area occupied. The model allows for a simple expression for forest value and the derivation of conditions for the optimal rotation age. The model also makes straightforward comparisons with the well-known Faustmann model possible. We present results for unrestricted as well as area-restricted versions of the models. We find that land values are unambiguously higher in the continuous cover forest models compared with the even-aged models. Under area restrictions, the optimal rotation age in a continuous cover forest model is unambiguously lower than the corresponding area restricted Faustmann solution, while the result for the area unrestricted model is ambiguous.

Suggested Citation

  • Jette Bredahl Jacobsen & Frank Jensen & Bo Jellesmark Thorsen, 2015. "Forest value and optimal rotations in continuous cover forestry," IFRO Working Paper 2015/08, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2015_08
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    References listed on IDEAS

    as
    1. Neher,Philip A., 1990. "Natural Resource Economics," Cambridge Books, Cambridge University Press, number 9780521311748.
    2. 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.
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    8. Newman, D.H., 2002. "Forestry's golden rule and the development of the optimal forest rotation literature," Journal of Forest Economics, Elsevier, vol. 8(1), pages 5-27.
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    10. Brukas, Vilis & Jellesmark Thorsen, Bo & Helles, Finn & Tarp, Peter, 2001. "Discount rate and harvest policy: implications for Baltic forestry," Forest Policy and Economics, Elsevier, vol. 2(2), pages 143-156, June.
    11. Schou, Erik & Jacobsen, Jette Bredahl & Kristensen, Kristian Løkke, 2012. "An economic evaluation of strategies for transforming even-aged into near-natural forestry in a conifer-dominated forest in Denmark," Forest Policy and Economics, Elsevier, vol. 20(C), pages 89-98.
    12. Thorsen, Bo Jellesmark, 19. "Risk, returns and possible speculative bubbles in the price of Danish forest land?," Scandinavian Forest Economics: Proceedings of the Biennial Meeting of the Scandinavian Society of Forest Economics, Scandinavian Society of Forest Economics, issue 43, May.
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    Cited by:

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    2. Hennessy, David A. & Zhang, Jing & Bai, Na, 2019. "Animal health inputs, endogenous risk, general infrastructure, technology adoption and industrialized animal agriculture," Food Policy, Elsevier, vol. 83(C), pages 355-362.

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    More about this item

    Keywords

    Faustmann rotation model; capital budgeting; uneven-aged forest management;
    All these keywords.

    JEL classification:

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

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