Abstract
Optimal harvest of forests in a partly integrated forest-industry enterprise is studied. The present value of expected total profits of the enterprise is maximized. The timber supply curve of the industrial forest is derived. It is found that, in the environment of uncertainty in future timber prices and timber supply from non-industrial private forests, the forest industry will harvest more than non-industrial private forest owners when the observed timber price is low. The industry's timber supply responds to changes of timber price in different ways at different price levels: when timber price is below a certain level, timber harvest is constant and not affected by timber price; when timber price increases from this level, timber harvest first decreases and later increases with timber price. A numerical example is used to illustrate the analytically-derived and general results. It is found that the optimal reservation prices of industrial forests are higher than those of non-industrial forests. However, the probability of harvesting an industrial forest stand is higher than that of harvesting a non-industrial private forest stand because the industrial forest stand could be harvested even when the observed timber price is lower than its optimal reservation price.
Published Version
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