Faustmann in an uncertain policy environment

Abstract

This paper deals with optimal forest rotation age and silvicultural investment under policy or regulatory uncertainty to which wasteful deforestation and lack of reforestation and afforestation efforts in the developing countries and loss of old growth forests and biodiversity in the developed countries are attributed. Incorporating a stochastic uncertainty factor into the familiar deterministic Faustmann formula yields a result that confirms with casual observations — when policy uncertainty is present, forest stands are harvested earlier and silvicultural investment is smaller than otherwise. The policy implication is that, in order to promote forest resource conservation, encourage afforestation and reforestation, and attack other forest-related problems effectively, the pervasive nature of policy uncertainty needs to be curbed.