2002 World Congress of Environmental and Resource Economists

This paper extends the literature on optimal tree harvesting under stochastic prices. With volatile lumber prices the value of a stand of trees is increased if the harvesting date is flexible depending on the prices of the day. Flexibility adds value becausea forest owner can delay harvesting when prices are depressed, or can harvest earlier than planned given a pricespike. Regulations in Canadian provinces have reduced the flexibility of firms harvesting on public lands by imposing allowable cut restrictions. This paper develops a two-factor realoptions model of the harvesting decision over infinite rotations with mean reverting stochastic prices. The market price of risk is estimated from the price of lumber futures contracts. The value of the stand under complete harvesting flexibility is compared to the value under different types of restrictions using data from Canada's boreal forests.



	Paper Title:	The Effect Of Harvesting Restrictions On The Value Of A Timber Investment With Uncertain Prices
	Presenting Author:	Margaret Insley (University of Waterloo)
	Coauthor 1:	Kimberly Rollins
	Coauthor 2:
	Coauthor 3:
	Abstract:	This paper extends the literature on optimal tree harvesting under stochastic prices. With volatile lumber prices the value of a stand of trees is increased if the harvesting date is flexible depending on the prices of the day. Flexibility adds value becausea forest owner can delay harvesting when prices are depressed, or can harvest earlier than planned given a pricespike. Regulations in Canadian provinces have reduced the flexibility of firms harvesting on public lands by imposing allowable cut restrictions. This paper develops a two-factor realoptions model of the harvesting decision over infinite rotations with mean reverting stochastic prices. The market price of risk is estimated from the price of lumber futures contracts. The value of the stand under complete harvesting flexibility is compared to the value under different types of restrictions using data from Canada's boreal forests.
	Link to paper:	Not available

	Session / Day / Time	2C / Monday / 10:15 - 11:45 am

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