Timber Harvesting with Fluctuating Prices

Abstract

Abstract Because of volatility in demand, timber prices tend to fluctuate from year to year. Timber owners know today's price but are uncertain about tomorrow's prices. Traditional Faustmann harvesting ignores these random annual price fluctuations and prescribes harvests on the basis of expected prices. In this paper, we adapt an asset sale model to forestry and solve for the optimal schedule of reservation prices. When current price is above the reservation price, owners should cut that age class, otherwise they should wait another year. This flexible price harvest policy significantly increases the present value of expected returns over the more rigid Faustmann model. For. Sci. 34(2):359-372.