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Risk Management Behavior of a Forest Owner to Address Growth Risk

Published online by Cambridge University Press:  15 September 2016

Marielle Brunette  and
Stéphane Couture
Marielle Brunette
Affiliation:
INRA-Nancy in the Laboratory of Forest Economics
Stéphane Couture*
Affiliation:
INRA-Toulouse in the Unit of Applied Mathematics and Informatics of Toulouse
*
Corresponding Author: NRA-Toulouse, Unité de Mathématiques et Informatique Appliquées de Toulouse (MIAT), 24 Chemin de Borde Rouge–Auzeville CS 52627, 31326 Castanet Tolosan cedex, France, Phone +33(0)5.61.28.57.40, Email Stephane.Couture@toulouse.inra.fr.
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Abstract

We analyze risk management behavior (financial savings versus physical savings) of a private forest owner who values amenities in relation to uncertainty about timber growth. In a two-period model, we study the properties of optimal current and future harvesting and risk management decisions. We show that the forest owner chooses the tool with the highest rate of return unless both risk management instruments are perfect substitutes. We prove that future harvesting is greater under physical savings than under financial savings. Comparative static results on amenity preferences, incomes, forest stocks, timber prices, and opportunity costs are investigated.

Keywords

amenitiesfinancial savingsforest managementgrowth riskharvesting decisionphysical savings
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 42 , Issue 2 , August 2013 , pp. 349 - 364
Copyright
Copyright © 2013 Northeastern Agricultural and Resource Economics Association 

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