Abstract
Abstract This article examines the effect of risk-aversion on the short-run supply of timber, when the harvest revenue is invested in a portfolio of a riskless and a risky asset. Assuming that the future stumpage price and the rate of return on the risky asset are independent and normally distributed, it is shown that the effect of risk-aversion on the optimal harvesting behavior depends on the sign of a marginal variance function. This shows the effect of a marginal increase in the harvest volume on the variance of the future wealth, evaluated at the optimal harvest-investment decision under risk-neutral preferences. If the marginal variance is negative, then risk-aversion increases harvest in the first-period. If it equals zero, then only high degrees of risk-aversion affect (increase) the harvest. Finally, if the marginal variance is greater than zero, then high degrees of risk-aversion increase the harvest, whereas low degrees of risk-aversion have the opposite effect. The result has implications for the analysis of the harvesting behavior of any renewable resources.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
