Optimal Forest Rotation with in SituPreferences

Abstract

This study develops a utility maximization, infinite horizon forest rotation model that includes in situvalues and the forest owner's consumption–savings decision making. The value of forest land becomes owner-specific and depends on property rights related to in situbenefits. The length of the rotation period depends, e.g., on the wealth of the forest owner and may evolve in time. A forest owner with accumulating nonforest assets never continues harvesting forever. In contrast, with decreasing nonforest assets the rotation period converges toward the Faustmann solution. In a multiple-stand version of the model, the harvesting decisions regarding different stands are linked together via the budget constraint and the dependence of an individual stand's in situvalue on the age structure of the whole forest. Numerical simulation with two stands suggests that, within the class of concave in situvaluation functions, the optimal solution yields convergence toward forests with increasing heterogeneity of age structures.