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On the Elasticities of Harvesting Rules

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  • Fwu-Ranq Chang

Abstract

In this paper, we rank the relative importance of the exogenous parameters upon the optimal harvesting size in a stochastic rotation problem. We show that when the tree growth follows geometric Brownian motion, the harvesting size is most elastic to the harvesting cost, followed by the interest rate, and is least elastic to the parameters of tree growth. Similar ranking holds for the linear growth case. In both cases the harvesting size is increasing and concave in the harvesting cost, bounded between two parallel lines. The harvesting decision is made according to a stochastic extension of the Faustmann formula.

Suggested Citation

  • Fwu-Ranq Chang, 2003. "On the Elasticities of Harvesting Rules," CESifo Working Paper Series 1082, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1082
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    References listed on IDEAS

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    1. Miller, Robert A. & Voltaire, Karl, 1980. "A sequential stochastic tree problem," Economics Letters, Elsevier, vol. 5(2), pages 135-140.
    2. Clarke, Harry R. & Reed, William J., 1989. "The tree-cutting problem in a stochastic environment : The case of age-dependent growth," Journal of Economic Dynamics and Control, Elsevier, pages 569-595.
    3. Samuelson, Paul A, 1976. "Economics of Forestry in an Evolving Society," Economic Inquiry, Western Economic Association International, vol. 14(4), pages 466-492, December.
    4. Reed, William J., 1993. "The decision to conserve or harvest old-growth forest," Ecological Economics, Elsevier, vol. 8(1), pages 45-69, August.
    5. Mitra, Tapan & Wan, Henry Jr., 1986. "On the faustmann solution to the forest management problem," Journal of Economic Theory, Elsevier, vol. 40(2), pages 229-249, December.
    6. repec:mes:challe:v:26:y:1983:i:4:p:56-57 is not listed on IDEAS
    7. Miller, Robert A. & Voltaire, Karl, 1983. "A stochastic analysis of the tree paradigm," Journal of Economic Dynamics and Control, Elsevier, vol. 6(1), pages 371-386, September.
    8. Reed, William J & Clarke, Harry R, 1990. "Harvest Decisions and Asset Valuation for Biological Resources Exhibiting Size-Dependent Stochastic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 147-169, February.
    9. Tahvonen, Olli & Salo, Seppo & Kuuluvainen, Jari, 2001. "Optimal forest rotation and land values under a borrowing constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 25(10), pages 1595-1627, October.
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    Cited by:

    1. Alvarez, Luis H.R. & Koskela, Erkki, 2006. "Does risk aversion accelerate optimal forest rotation under uncertainty?," Journal of Forest Economics, Elsevier, vol. 12(3), pages 171-184, December.
    2. Shackleton, Mark B. & Sødal, Sigbjørn, 2010. "Harvesting and recovery decisions under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(12), pages 2533-2546, December.
    3. Leon-Santana, Miguel & Hernandez, Juan M., 2008. "Optimum management and environmental protection in the aquaculture industry," Ecological Economics, Elsevier, vol. 64(4), pages 849-857, February.
    4. repec:eee:ecomod:v:210:y:2008:i:1:p:161-168 is not listed on IDEAS

    More about this item

    Keywords

    stochastic rotation problem; the Faustmann formula; site value; homogeneity conditions; and seedling value;

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