Abstract
This article exploits data from ascending auctions from the US Forest Service to estimate an optimal reservation price in forestry when prices are uncertain and when the forest owner endogenizes the cutting age of trees. The results suggest that there is a huge gain in terms of the forest owner profit to use the estimated optimal reservation price rather the well-known reservation price proposed by Laffont and Maskin’s and Riley and Samuelson’s which is suboptimal in the forestry context. Finally, the results also confirm that the reservation price set by the US government agency is too low.
Highlights
In forestry, auction mechanism is commonly used to sale trees
The results suggest that there is a huge gain in terms of the forest owner profit to use the estimated optimal reservation price rather the well-known reservation price proposed by Laffont and Maskin’s and Riley and Samuelson’s which is suboptimal in the forestry context
Using Equation (3)-(5) with preceding estimates, I calculated the model optimal reservation price (Model), Laffont and Maskin’s and Riley and Samuelson’s reservation price (LMRS) used in previous empirical studies, and the reservation price set by the United States Forest Service (USFS) for Lodgepole pine and Douglas fir, respectively, when the interest is 3%
Summary
In forestry, auction mechanism is commonly used to sale trees. In a recent theoretical paper, [3] showed that this result is not suitable for the forest management problem to estimate an optimal reservation in forestry because it ignores the harvesting decision. He proposed an optimal reservation price that endogenizes the harvesting decision by assuming that bidders’ valuations depend on the optimal harvest time of trees namely, the optimal rotation which is the central problem in the management of forest resources. Following [3], this article aims to estimate an optimal reservation in forestry when stumpage price are
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