Asset retirement with infinitely repeated alternative replacements: Harvest age and species choice in forestry

Abstract

CIRANO Le CIRANO est un organisme sans but lucratif constitué en vertu de la Loi des compagnies du Québec. Le financement de son infrastructure et de ses activités de recherche provient des cotisations de ses organisations-membres, d'une subvention d'infrastructure du ministère de l'Économie, de l'Innovation et des Exportations, de même que des subventions et mandats obtenus par ses équipes de recherche. CIRANO is a private non-profit organization incorporated under the Quebec Companies Act. Its infrastructure and research activities are funded through fees paid by member organizations, an infrastructure grant from the ministère de l'Économie, de l'Innovation et des Exportations, and grants and research mandates obtained by its research teams.

Planting and Harvesting Decisions: A Review and Extension to the Case of Two Alternative Tree Species

“…This result is also verified in the case of rising or stochastic timber prices and the possibility of changing land use, as in [13,14].…”

“…This result holds when regeneration costs are positive, as shown numerically in [2]. This result also holds when timber prices follow geometric Brownian motion and regeneration costs are absent or accounted for in the price timber as shown in [14] and discussed in Section 5.…”

“…Under these conditions, successive rotation lengths converge after some rotations to a certain length that can be higher or lower than the static Faustmann's rotation length a F . However, when timber prices are rising or stochastic and a conversion of the site to an alternative use is possible, changes over time in the optimal rotation lengths remain uncertain, as in [3,13,14], for instance.…”

“…Two mutually exclusive tree species exist in [11,12], but choosing one species leads to permanently losing the other. More recently, forest rotation was studied in situations in which two tree species existed with rising timber prices [13] or stochastic timber prices [14].…”

“…In Section 3, we will present and discuss the model of two tree species as in [13,14], in which two alternative tree species are available. Both species have two different stochastic timber prices that are assumed to follow a geometric Brownian motion and two deterministic agedependent volume growth functions.…”