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Harvesting and recovery decisions under uncertainty

  • Shackleton, Mark B.
  • Sødal, Sigbjørn

A stochastic forest rotation model in the Faustmann tradition is presented and exemplified. The model combines harvesting decisions with the potential to recover or clean up to restore the land after very unfavorable evolutions of the stochastic growth process. Uncertainty is shown to have a generally ambiguous effect on the optimal choice of investment strategy. It is also shown how such models can be related to theory of optimal inventory control.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 12 (December)
Pages: 2533-2546

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:12:p:2533-2546
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Margaret Insley & Kimberly Rollins, 2005. "On Solving the Multirotational Timber Harvesting Problem with Stochastic Prices: A Linear Complementarity Formulation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 735-755.
  2. Luis Alvarez & Jukka Virtanen, 2006. "A class of solvable stochastic dividend optimization problems: on the general impact of flexibility on valuation," Economic Theory, Springer, vol. 28(2), pages 373-398, 06.
  3. Alvarez, Luis H.R. & Koskela, Erkki, 2003. "On Forest Rotation Under Interest Rate Variability," Discussion Papers 840, The Research Institute of the Finnish Economy.
  4. Dixit, Avinash & Pindyck, Robert S & Sodal, Sigbjorn, 1999. "A Markup Interpretation of Optimal Investment Rules," Economic Journal, Royal Economic Society, vol. 109(455), pages 179-89, April.
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  6. Fwu-Ranq Chang, 2003. "On the Elasticities of Harvesting Rules," CESifo Working Paper Series 1082, CESifo Group Munich.
  7. Dixit, Avinash, 1991. "A simplified treatment of the theory of optimal regulation of Brownian motion," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 657-673, October.
  8. repec:spr:compst:v:54:y:2001:i:2:p:315-337 is not listed on IDEAS
  9. Dayanik, Savas & Karatzas, Ioannis, 2003. "On the optimal stopping problem for one-dimensional diffusions," Stochastic Processes and their Applications, Elsevier, vol. 107(2), pages 173-212, October.
  10. Bar-Ilan, Avner & Strange, William C, 1996. "Investment Lags," American Economic Review, American Economic Association, vol. 86(3), pages 610-22, June.
  11. Shackleton, Mark B. & Sodal, Sigbjorn, 2005. "Smooth pasting as rate of return equalization," Economics Letters, Elsevier, vol. 89(2), pages 200-206, November.
  12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  13. Sodal, Sigbjorn, 2006. "Entry and exit decisions based on a discount factor approach," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1963-1986, November.
  14. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  15. Lancaster, Kelvin, 1975. "Socially Optimal Product Differentiation," American Economic Review, American Economic Association, vol. 65(4), pages 567-85, September.
  16. Saphores, Jean-Daniel, 2003. "Harvesting a renewable resource under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 509-529, December.
  17. Willassen, Yngve, 1998. "The stochastic rotation problem: A generalization of Faustmann's formula to stochastic forest growth," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 573-596, April.
  18. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  19. 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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