WHEN TO CUT A STAND OF TREES?

This paper revisits the debate over the economic optimality of different timber harvest rules. The traditional Faustmann and Maximum Sustained Yield rotation determinations are confined to a deterministic world. Once stochasticity is introduced into the model formulation and the additional rental and management costs due to postponement of harvest are taken into account, we find that the optimal stopping time becomes random and varies in response to changes in the underlying price and growth processes. As a result, this stochastic optimal stopping time is bounded by the Faustmann cutting age from below if variabilities of the stochastic processes diminish to zero, but not necessarily by the MSY rotation from above.

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