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The Effect of Fire Risk on the Critical Harvesting Times for Pacific Northwest Douglas-Fir When Carbon Price Is Stochastic

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  • Creamer, Selmin F.
  • Genz, Alan
  • Blatner, Keith A.

Abstract

The forest owner’s decision regarding when to harvest, based on forest’s current worth, is analyzed using the real options approach for a representative Pacific Northwest Douglas-fir stand when the carbon price is stochastic and there is a fire risk. The problem is framed as a linear complementarity problem and solved using the fully implicit finite difference method combined with a penalty method. The fire risk results in lower option values and earlier critical harvesting times, whereas a wider carbon price range ($0–$100 versus $0–$10) produces contrary results and more responsiveness to the parameter changes.

Suggested Citation

  • Creamer, Selmin F. & Genz, Alan & Blatner, Keith A., 2012. "The Effect of Fire Risk on the Critical Harvesting Times for Pacific Northwest Douglas-Fir When Carbon Price Is Stochastic," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), pages 1-14, December.
    • Handle: RePEc:ags:arerjl:141673
    DOI: 10.22004/ag.econ.141673
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    Cited by:

    1. Patto, João V. & Rosa, Renato, 2022. "Adapting to frequent fires: Optimal forest management revisited," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    2. Hu, Lijiao & Stainback, George & Li, Xiaoshu, 2016. "Economic Analysis of Carbon Sequestration under Risks in Forest management," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229983, Southern Agricultural Economics Association.
    3. Ning, Zhuo & Sun, Changyou, 2017. "Forest management with wildfire risk, prescribed burning and diverse carbon policies," Forest Policy and Economics, Elsevier, vol. 75(C), pages 95-102.

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