A practical way to integrate risk in forest management decisions

Abstract

The concept of expected losses is an appropriate measure for integrating risk in the determination of the optimal rotation period and choice of tree species. Natural threats are challenging forest management decisions. Essential decisions about the optimal length of a harvest period are often taken without considering risks. Here, a practical and easy to apply way to integrate risk in these decisions is shown. Furthermore, it is seen how the rotation period changes according to the risk-type and risk-level. The marginal principle of Presler’s indicator rate is developed further by including the concept of expected losses, leading to an optimal harvest age under risk. The application of the new formula is shown by a simulation, which also visualises the influence on the optimal rotation age. Whether risk influences the optimal harvest age compared to a risk free solution, depends on the relationship between expected losses in terms of land rent of the succeeding stand and expected losses in terms of value growth of the existing stand. If they are equal, the rotation age stays. If the expected loss on value growth is bigger than on land rent, the rotation period will be shorter, while it will be longer if the relation is inverse. The concept of expected losses can be applied to practically determine the optimal rotation period under risk.