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The Dynamic Behavior of Efficient Timber Prices

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  • Bruce McGough
  • Andrew J. Plantinga
  • Bill Provencher

Abstract

A simple theoreticalmodel of a tim- consist ing of Faustmann rotations evalubermarket finds that there exists a rational expecta- ated at the mean of the price process. tions equilibrium in which prices evolve according The central question addressed in this to a stationary A R (1) process.Simulations analyz e study is: what is the appropriate model of a model with a more general representation of tim- timber prices? This is an important quesber stock dynamics. Implications for the optimal tion given the prescriptive nature of the harvesting literature are: 1) market efficiency pro- timber harvesting literature3 vides little justification for random walk prices; 2) and evidence unit root tests, used in previous studies to analyz e that the form of the price process strongly the informational efficiency of timber markets, do influences the performance of a reservanot distinguish between efficient and inefficient tion price rule relative to the Faustmann markets; and 3) failure to recognize asymmetric rotation (Haight and Holmes 1991; Plandisturbances in time-series analyses of historical tinga 1998). Nonetheless, most authors aptimber prices can lead to sub-optimal harvesting pear to select the form of the price process rules.

Suggested Citation

  • Bruce McGough & Andrew J. Plantinga & Bill Provencher, 2004. "The Dynamic Behavior of Efficient Timber Prices," Land Economics, University of Wisconsin Press, vol. 80(1), pages 95-108.
  • Handle: RePEc:uwp:landec:v:80:y:2004:i:1:p:95-108
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    5. Reed, William J., 1993. "The decision to conserve or harvest old-growth forest," Ecological Economics, Elsevier, vol. 8(1), pages 45-69, August.
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    8. Thomas A. Thomson, 1992. "Optimal Forest Rotation When Stumpage Prices Follow a Diffusion Process," Land Economics, University of Wisconsin Press, vol. 68(3), pages 329-342.
    9. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, January.
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    Cited by:

    1. Gong, Peichen & Löfgren, Karl-Gustaf, 2005. "Market and welfare implications of the reservation price strategy for forest harvest decisions," Umeå Economic Studies 664, Umeå University, Department of Economics.
    2. McGough Bruce & Plantinga Andrew J. & Costello Christopher, 2009. "Optimally Managing a Stochastic Renewable Resource under General Economic Conditions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-31, December.
    3. Gong, Peichen & Löfgren, Karl Gustaf, 2007. "Market and welfare implications of the reservation price strategy for forest harvest decisions," Journal of Forest Economics, Elsevier, vol. 13(4), pages 217-243, November.
    4. Manley, Bruce & Niquidet, Kurt, 2010. "What is the relevance of option pricing for forest valuation in New Zealand?," Forest Policy and Economics, Elsevier, vol. 12(4), pages 299-307, April.
    5. Sanchirico, James & Newell, Richard & Papps, Kerry, 2005. "Asset Pricing in Created Markets for Fishing Quotas," Discussion Papers dp-05-46, Resources For the Future.
    6. Insley, Margaret & Lei, Manle, 2007. "Hedges and Trees: Incorporating Fire Risk into Optimal Decisions in Forestry Using a No-Arbitrage Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 32(03), December.

    More about this item

    JEL classification:

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

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