State-space approach to capital return in nonlinear growth processes

Abstract

PurposeThe purpose of this paper is to introduce a capital return rate function for growth processes, and apply it to financial sustainability considerations in growing multiannual plants.Design/methodology/approachA partition function of change rate of capitalization is introduced, as well as that of capitalization itself, and the expected value of capital return rate is produced as the ratio of the two functions.FindingsFinancial sustainability significantly differs from maximum-yield sustainability, and does not depend on any external interest rate.Research limitations/implicationsIt is proposed that financial considerations should not be based on any arbitrary external interest. Neither should the shape of any yield function be neglected. Constancy of capital return rate in time is not assumed.Practical implicationsTwo forestry examples show that the capital return rate is sensitive to rotation time, and in particular to the level of initial investment. The proposed procedure can be applied in the absence of periodic boundary conditions in time.Originality/valueThe methodology has not been applied in this field previously.