The Dynamic Behavior of Efficient Timber Prices
The problem of when to optimally harvest trees when timber prices evolve according to an exogenous stochastic process has been studied extensively in recent decades. However, little attention has been given to the appropriate form of the stochastic process for timber prices, despite the fact that the choice of a process has important effects on optimal harvesting decisions. We develop a simple theoretical model of a timber market and show that there exists a rational expectations equilibrium in which prices evolve according to a stationary ARMA(1,1) process. Simulations are used to analyze a model with a more general representation of timber stock dynamics and to demonstrate that the unconditional distribution for rational timber prices is asymmetric. Implications for the optimal harvesting literature are: 1) market efficiency provides little justification for random walk prices, 2) unit root tests, used to analyze the informational efficiency of timber markets, do not distinguish between efficient and inefficient markets, and 3) failure to recognize asymmetric disturbances in time-series analyses of historical timber prices can lead to sub-optimal harvesting rules.
|Date of creation:||Oct 2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.aae.wisc.edu/pubs/sps/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Angus Deaton & Guy Laroque, 1990.
"On The Behavior of Commodity Prices,"
NBER Working Papers
3439, National Bureau of Economic Research, Inc.
- 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.
- Pindyck, Robert S, 1984. "Uncertainty in the Theory of Renewable Resource Markets," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 289-303, April.
- Reed, William J., 1993. "The decision to conserve or harvest old-growth forest," Ecological Economics, Elsevier, vol. 8(1), pages 45-69, August.
- Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
- Fama, Eugene F, 1976. "Efficient Capital Markets: Reply," Journal of Finance, American Finance Association, vol. 31(1), pages 143-45, March.
- LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
- Jean-Daniel Saphores & Lynda Khalaf & Denis Pelletier, 2002. "On Jumps and ARCH Effects in Natural Resource Prices: An Application to Pacific Northwest Stumpage Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 387-400.
- Heal, G., 1990.
"The Optimal Use Of Exhaustible Resources,"
fb-_90-10, Columbia - Graduate School of Business.
- Williams,Jeffrey C. & Wright,Brian D., 2005.
"Storage and Commodity Markets,"
Cambridge University Press, number 9780521023399, October.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Harry R Clarke & William J. Reed, 1989.
"The Tree-Cutting Problem in a Stochastic Environment: The case of Age Dependent Growth,"
1989.01, School of Economics, La Trobe University.
- 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, vol. 13(4), pages 569-595, October.
- Berck, Peter, 1981. "Optimal management of renewable resources with growing demand and stock externalities," Journal of Environmental Economics and Management, Elsevier, vol. 8(2), pages 105-117, June.
- Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, June.
- Albers, Heidi J., 1996. "Modeling Ecological Constraints on Tropical Forest Management: Spatial Interdependence, Irreversibility, and Uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 73-94, January.
When requesting a correction, please mention this item's handle: RePEc:ecl:wisagr:454. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.