Scandinavian Working Papers in Economics

Working Paper Series,
Swedish University of Agricultural Sciences, Department of Forest Economics

No 02/325: Optimal Stocking Level and Harvesting with Stochastic Prices

Fadian Lu () and Peichen Gong

Abstract: An integrated thinning and final harvesting strategy for even-aged stand under conditions of uncertainty in future timber prices is developed. This strategy consists of two parts: a feedback stocking-level control function that guides the choice of thinning intensities at different ages, and a reservation price function that determines the time of final harvesting. Optimal stocking level is modelled as a function of stand age and market timber prices. The reservation price function is formulated using stand age and standing timber stock as independent variables. The coefficients of the two functions are optimised simultaneously for a sample stand of Scots pine (Pinus Sylvestris L.) located in northern Sweden. The functions obtained are then used to simulate the thinning and final harvesting decisions for the sample stand. The integrated strategy is compared with a pure reservation price strategy where no thinning is allowed, and with an open-loop harvesting strategy that ignores timber price uncertainty.

Keywords: Even-aged stand, thinning, rotation age, adaptive harvest strategy, reservation price.

28P, April 2002

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