OPTIMAL TIMING OF SALVAGE HARVEST IN RESPONSE TO A STOCHASTIC INFESTATION

Abstract Following a catastrophic disturbance, forest managers may choose to perform a salvage harvest to recoup timber losses. When the disturbance process evolves stochastically, a unique option value arises associated with the salvage harvest decision. This option value represents the value of postponing a salvage harvest to gain more information about the disturbance process. This paper uses a real options approach to determine how much of a forested area must be infested to trigger a salvage harvest when the forest provides both timber and nontimber values. Analytical results indicate slower rates of forest recovery will optimally delay a salvage harvest while forested areas with large timber values and where nontimber values are more sensitive to the presence of dead and dying trees should be harvested more immediately. The model is applied to a mountain pine beetle outbreak in Idaho's Sawtooth National Forest using readily available aerial detection survey data.

[1]  B. Bentz,et al.  Connecting phenological predictions with population growth rates for mountain pine beetle, an outbreak insect , 2009, Landscape Ecology.

[2]  M. Lei,et al.  Hedges and Trees: Incorporating Fire Risk into Optimal Decisions in Forestry Using a No-Arbitrage Approach , 2007 .

[3]  M. Insley,et al.  On Solving the Multirotational Timber Harvesting Problem with Stochastic Prices: A Linear Complementarity Formulation , 2005 .

[4]  T. Requate,et al.  The Dixit-Pindyck and the Arrow-Fisher-Hanemann-Henry option values are not equivalent: a note on Fisher (2000) , 2005 .

[5]  J. Shogren,et al.  Managing exotic pests under uncertainty: optimal control actions and bioeconomic investigations , 2005 .

[6]  J. Logan,et al.  Ecological consequences of climate change altered forest insect disturbanceregimes , 2004 .

[7]  Jean-Daniel Saphores,et al.  Harvesting a renewable resource under uncertainty , 2003 .

[8]  A. Lugo,et al.  Climate Change and Forest Disturbances , 2001 .

[9]  David L. Sunding,et al.  Insect Population Dynamics, Pesticide Use, and Farmworker Health , 2000 .

[10]  Anthony C. Fisher,et al.  Investment under uncertainty and option value in environmental economics , 2000 .

[11]  Margaret Forsyth,et al.  On estimating the option value of preserving a wilderness area , 2000 .

[12]  Jean-Daniel M. Saphores.  The Economic Threshold with a Stochastic Pest Population: A Real Options Approach , 1999 .

[13]  Andrew J. Plantinga,et al.  The Optimal Timber Rotation: An Option Value Approach , 1998 .

[14]  J. Conrad.  On the option value of old-growth forest , 1997 .

[15]  Global Warming: When to Bite the Bullet , 1997 .

[16]  Yngve Willassen,et al.  The Stochastic Rotation Problem - A Generalization of faustmann's Formula to Stochastic Forest Growth , 1998 .

[17]  L. Trigeorgis.  Real Options: Managerial Flexibility and Strategy in Resource Allocation , 1996 .

[18]  Avinash Dixit,et al.  The art of smooth pasting , 1993 .

[19]  F. Zinkhan,et al.  Option Pricing and Timberland's Land-Use Conversion Option , 1991 .

[20]  W. J. Reed,et al.  The decision to conserve or harvest old-growth forests. , 1993 .

[21]  W. Reed,et al.  Harvest decisions and asset valuation for biological resources exhibiting size-dependent stochastic growth , 1990 .

[22]  W. Reed,et al.  The tree-cutting problem in a stochastic environment: The case of age-dependent growth , 1989 .

[23]  Rob Hengeveld,et al.  Dynamics of Biological Invasions , 1989 .

[24]  Ioannis Karatzas,et al.  Brownian Motion and Stochastic Calculus , 1987 .

[25]  T. Fahey,et al.  Changes in Product Recovery Between Live and Dead Lodgepole Pine: A Compendium , 2018 .

[26]  R. Kramer,et al.  The Integration of Farm Programs for Achieving Soil Conservation and Nonpoint Pollution Control Objectives , 1986 .

[27]  J. Harrison,et al.  Brownian motion and stochastic flow systems , 1986 .

[28]  William J. Reed,et al.  The effects of the risk of fire on the optimal rotation of a forest , 1984 .

[29]  Robert A. Miller,et al.  A stochastic analysis of the tree paradigm , 1983 .

[30]  W. Michael Hanemann,et al.  Information and the concept of option value , 1983 .

[31]  Terry C. Daniel,et al.  Progress in Predicting the Perceived Scenic Beauty of Forest Landscapes , 1981 .

[32]  Rulon D. Pope,et al.  Participation in Farm Commodity Programs: A Stochastic Dominance Analysis , 1981 .

[33]  Robert A. Miller,et al.  A sequential stochastic tree problem , 1980 .

[34]  K. Arrow,et al.  Environmental Preservation, Uncertainty, and Irreversibility , 1974 .

[35]  C. Henry.  Investment Decisions Under Uncertainty: The "Irreversibility Effect." , 1974 .

[36]  E. Prescott,et al.  Investment Under Uncertainty , 1971 .