Nonconstant Risk Attitudes and Timber Harvesting

Abstract

Abstract This article explores the effects of risk attitudes on the harvesting behavior of forest landowners. In particular, the effects of changing risk behavior on the forest owners' optimal harvesting decisions are studied under timber price uncertainty. With a theoretical model introducing an endogenous risk premium and addressing nonconstant risk attitudes, it is shown how the commonly predicted increase of wealth among nonindustrial private forest owners can have profound effects on harvesting behavior and timber supply from the private forest sector. For example, the model predicts that if landowners' aversion toward risk declines with increasing wealth, the standing timber stock in nonindustrial private forests will increase in the future, and the intensity of timber harvests declines. Contrary to now-popular timber harvest models, these results are obtained without dividing the benefits of forest into timber and nontimber ones. FOR. SCI. 48(3):459–470.