Optimal harvest strategy for even‐aged stands with price uncertainty and risk of natural disturbances

Abstract

We present a reservation price model to examine the joint impacts of natural disturbances and stumpage price uncertainty on the optimal harvesting decision for even‐aged forest stands. We consider a landowner who manages a loblolly pine stand to produce timber and amenities, under age‐dependent risk of wildfires and uncertainty in future timber prices. We show that the incorporation of risk of wildfires decreases the optimal reservation prices. The inclusion of risk of wildfires leads to lower land values and reduces the mean harvest age compared with the case of no‐risk of wildfires. Higher economic gains are obtained with the reservation price strategy compared with the deterministic rotation age model—a difference in the land value of $2,326 ha−1 (21%) between the two approaches. Recommendations for Resource Managers Our adaptive harvest strategy shows that the incorporation of risk of wildfires decreases the optimal reservation prices compared with the case of no‐risk of wildfires. Low reservation prices—a price that makes the landowner indifferent between harvesting or waiting longer—result in lower economic benefits for landowners and potential conversions of lands to nonforest use. Forest management practices oriented to reduce the effects of catastrophic disturbances, for example, creating a more complex forest structure with different stand densities, become imperative to ensure the sustainability of forestlands in the US South. Our analysis also suggests that the valuation of forestry investments should consider not only the risk of catastrophic events but also uncertainty in future timber prices. Higher appraisals of land value are obtained when timber price uncertainty is explicitly recognized, providing financial incentives for landowners to invest in forestry.

Effect of root and butt rot uncertainty on optimal harvest schedules and expected incomes at the stand level

“…Previous research investigating the effect of catastrophic events on the optimal rotation age, such as Reed (1984) and Susaeta and Gong (2019), advocates for shortening the rotation length as the best management option to maximize the value of the stand. Also, Macpherson et al (2016) show that under a risk of a pathogenic disease outbreak that would make the timber of trees affected by it worth nothing, shortening the rotation length is the optimal strategy for managing the land.…”

“…Reed (1984) adapted the Faustmann formula for infinite rotation to consider wildfire risk using a homogeneous Poisson distribution. Susaeta and Gong (2019) also investigated the risk of natural disasters by incorporating it into a reservation price model. Díaz-Yáñez et al (2019) looked into how the risk of snow and wind damage can impact the harvesting ages in spruce forests in Norway.…”

Risk Aversion and Timber Harvest Strategies: A Case Study of Nonindustrial Private Forest Management in Louisiana

“…Moreover, Susaeta and Gong (2019) employ a reservation price model to estimate the joint impacts of natural disturbance and stumpage price uncertainty on the optimal harvesting decision for even-aged forest stands. The authors suggested that forest owners should consider the wildfire risk and market price simultaneously when determining the optimal harvesting decision.…”

Introduction to the special issue on “Economic modeling of natural resources for sustainable development”

“…Susaeta and Gong () investigate the effects of two risk components (price and wildfire) on the even‐aged forest land. Using the reservation price model, they show that wildfire risk reduces the optimal reservation price, hastens the harvesting of trees, and provides lower land values.…”

“…For example, Fuglie and Heisey (2007) indicate that public investment in U.S. agriculture has increased crop outputs, and this has benefitted farmers (increased revenue) and consumers (availability of food in an affordable price). Susaeta and Gong (2019) investigate the effects of two risk components (price and wildfire) on the even-aged forest land. Using the reservation price model, they show that wildfire risk reduces the optimal reservation price, hastens the harvesting of trees, and provides lower land values.…”