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Optimizing forest management when storms have an impact on both production and price: a Markov decision process approach

Author

Listed:
  • Marielle Brunette

    (Laboratoire d'Economie Forestière, INRA - AgroParisTech)

  • Stéphane Couture

    (INRA, UR 875 Biométrie et Intelligence Artificielle)

  • Jacques Laye

    (Laboratoire d'Economie Forestière, INRA - AgroParisTech)

Abstract

Windstorms generate windfalls that may lead to price decreases. Studies have often focused on stochastic growth and price, but considered that the link between these two risks was generally nil. In our model, we assume that storms generate windfalls and that these windfalls have an impact on timber price through volume and quality. The objective of this paper was to analyze the impact of these two effects on harvesting behavior. We considered that timber stock follows a Markov Decision Process (MDP) and that the harvesting decision is a control variable. We solved the optimal harvesting problem under storm risk with a risk-averse forest owner and when the storm has an impact on production and price. We studied the impact of a change in the storm risk distribution, the percentage of quality loss and risk aversion on the optimal harvesting decision.

Suggested Citation

  • Marielle Brunette & Stéphane Couture & Jacques Laye, 2012. "Optimizing forest management when storms have an impact on both production and price: a Markov decision process approach," Working Papers - Cahiers du LEF 2012-03, Laboratoire d'Economie Forestiere, AgroParisTech-INRA, revised Aug 2012.
    • Handle: RePEc:lef:wpaper:2012-03
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    File URL: http://www6.nancy.inra.fr/lef/Cahiers-du-LEF/2012/2012-03
    File Function: First version, 2010
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    Citations

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    Cited by:

    1. Marielle Brunette & Jérôme Foncel & Nazindigouba Eric Kéré, 2014. "Attitude towards Risk and Production Decision: An Empirical analysis on French private forest owners," Working Papers halshs-00981350, HAL.
    2. Eric Nazindigouba KERE & Jérôme FONCEL & Marielle BRUNETTE, 2014. "Attitude towards Risk and Production Decision: An Empirical analysis on French private forest owners," Working Papers 201410, CERDI.

    More about this item

    Keywords

    storm; forest; production risk; price risk; quality loss; Markov process.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

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