Risks, Information and Short-Run Timber Supply

2013

Efforts to increase wood mobilization have highlighted the need to appraise drivers of short-run timber supply. The current study aims to shed further light on harvesting decisions of private forest owners, by investigating optimal harvesting under uncertainty, when timber revenues are invested on financial markets and uncertainty is mitigated by news releases. By distinguishing between aggregate economic risk and sector specific risks, the model studies in great detail optimal harvesting-investment decisions, with particular emphasis on the non-trivial transmission of risk on optimal harvesting, and on the way private forest owners react to news and information. The analysis of the role played by information in harvesting decisions is a novelty in forest economic theory. The presented model is highly relevant from a policy-information is a commonly used forest policy instrument-as well as a practical perspective, since the mechanism of risk transmission is at the basis of timber pricing.

Forest Research: Open Access, 2014

Existing decision support systems (DSS) do not account for forest owner heterogeneity, nor do they explicitly model the reaction of forest owners to policy. Hence, current DSS are suitable for response analysis, but much less useful for policy impact assessment or forecasting. The current study presents a theoretical model of harvesting behavior which provides the basis for a simulation model, Expected Value Asymmetries (EVA), useful for analyzing how timber supply and forest characteristics are affected when forest owners differ as to responsiveness to information, risk aversion, and patience as regards postponement of harvesting revenues. The simulation results clearly indicate that the model is well adapted for considering forest owner heterogeneity when assessing the impact of policy on the inter-temporal development of forest resources and timber market conditions. Finally, it is outlined how EVA could integrate forest owner specific harvesting behavior in an augmented Decision Support System (DSS), thus addressing the inability of DSS operational at pan-European level to model the interaction between policy and forest management decisions.

Forest Science

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. FOR. SCI. 49(5):647-656.

Risk management of forest is an important issue. Forests managers are becoming increasingly risk averse and seeking tools and methods for manage the risk. The aim of this paper is to provide an overview of risk management in forestry, with a particular emphasis on economics perspectives. At this paper, different sources of risk in forest management will be discussed. Major sources of economics risk are financial risk and market risk. Results indicated that according to the Jensen inequality, adaptive harvesting provides better representations of forest management problems than deterministic model and increasing price risk could increase the expected producer surplus.

Small-scale Forestry

Forest owners face many challenges regarding forest management due to the long period from planting to harvest. Along with the economic and environmental factors that influence management actions, the owners' attitude to risk plays a crucial role in forest management decisions. This study shows that understanding the effects of the owner's risk preference for management actions is an important step to form an effective forest policy. The objectives of the study are to (1) assess the economic advantage of forest management alternatives over a range of risk aversion coefficients and (2) determine the financial incentive (risk premium) corresponding to a forest owners' risk attitude. We implemented the stochastic efficiency with respect to a function framework to evaluate a set of fertilization, herbicide, and thinning management alternatives at mid-rotation loblolly pine plantations in Louisiana. Results from this study indicate that forest owner's risk preference affe...

Canadian Journal of Forest Research

Increased harvest is high on the forestry and climate policy agenda in several countries. By carrying out a national-wide survey of forest owners, we explored to what extent private non-industrial forest owners in Norway are willing to increase harvest due to elevated hypothetical prices. The results indicate that owners who have not harvested timber for sale in the last 15 years do not respond to large price shifts. Instead, ownership objectives and knowledge of a key policy instrument predict willingness to enter the timber market among these owners. The willingness among owners who have sold timber the last 15 years depends on these factors, in addition to price, forest area, income, and gender. Female owners were significantly less willing than male owners to increase harvest. Once the decision to harvest was taken, the stated timber supply volume per area unit decreases with productive forest area among both active and inactive owners. With regard to sources of information, own...

Forest Policy and Economics, 2010

A mail survey of nonindustrial private forest (NIPF) owners in two counties in northern Sweden was conducted to investigate the risk preferences of NIPF owners and their perceptions of the return and risk of timber investment relative to investment alternatives outside forestry. We also used the data collected from the survey to examine the relationship between the stated preferences, subjective judgements, and the observed and planned timber fellings. Our aim was to determine as to what extent the NIPF owners' harvesting behaviour was consistent with their preferences and subjective judgments. The result shows that a majority of the NIPF owners who responded to the survey were risk-neutral or risk-prone. There were no statistically significant correlations between a forest owner's attitudes toward risk and the size of forest property. However, risk preferences have significant impacts on the decision to fell: the more a forest owner likes to take risks, the more likely it is that he/she conducts final felling. The result also shows large variations among NIPF owners with respect to the subjective judgements of the return and risk of the alternative investments. For each respondent we elicited the most preferred investment alternative based on the stated risk preferences and the subjective judgements of the return and risk of the alternative investments. Owners whose preferred investment alternative is the mature forest are on average significantly less active in harvesting than owners with other preferred investment alternatives. However, there are no significant differences in the felling intensity and the growing stock of timber among the different groups of NIPF owners. The examination of NIPF owners' harvesting behaviour, risk preferences and subjective judgments reveals strong indications of the difficulties for NIPF owners to make rational decisions when faced with uncertainties.

2000

Aggregate timber supply by ownership was investigated for a small region by applying stand-level harvest choice models to a representative sample of stands and then aggregating to regional totals using the area-frame of the forest survey. Timber harvest choices were estimated as probit models for three ownership categories in coastal plain southern pine stands of North Carolina using individual permanent and remeasured stand-level data from last two available USDA Forest Service Forest Inventory and Analysis (FIA) surveys. The timber harvest decision was modeled as a function of timber values, a cost factor, and stand volume as a proxy for nontimber values. Probit models were statistically significant at 1% for all ownerships. Area expansion factors (the portion of forest area in the region represented by the sampled stand) were then combined with harvest probabilities to model the aggregate effects of price changes on timber supply, given a fixed forest area. Implied price elasticities were estimated using this modeling of aggregate effects, and a bootstrapping procedure was applied to estimate confidence limits for supply elasticities with respect to price. Our results showed that NIPF and industry were elastically responsive in the aggregate when price increases are perceived as temporary but much less elastically and usually negat ively responsive when increases are perceived as permanent. Results are consistent with theory of optimal rotations and highlight the critical influence of both existing inventory structure and expectations on aggregate timber supply. FOR. Sci. 46(3):377-389.

Land Economics, 2004

The problem of when to optimally harvest trees when timber prices evolve according to an exogenous stochastic process has been studied extensively in recent decades. However, little attention has been given to the appropriate form of the stochastic process for timber prices, despite the fact that the choice of a process has important effects on optimal harvesting decisions. We develop a simple theoretical model of a timber market and show that there exists a rational expectations equilibrium in which prices evolve according to a stationary ARMA(1,1) process. Simulations are used to analyze a model with a more general representation of timber stock dynamics and to demonstrate that the unconditional distribution for rational timber prices is asymmetric. Implications for the optimal harvesting literature are: 1) market efficiency provides little justification for random walk prices, 2) unit root tests, used to analyze the informational efficiency of timber markets, do not distinguish between efficient and inefficient markets, and 3) failure to recognize asymmetric disturbances in time-series analyses of historical timber prices can lead to sub-optimal harvesting rules.

SSRN Electronic Journal, 2000

Document de travail n° 2009-01 LEF -AgroParisTech/INRA -14, rue Girardet -CS 4216 -F-54042 Nancy cedex 00 33 (0)3 83 39 68 67-00 33 (0)3 83 37 06 45 [email protected] Document de travail du LEF n°2009-01 Résumé Aménités et risque en gestion forestière L'objectif de l'article est d'analyser les décisions de couverture d'un propriétaire forestier privé non-industriel en présence d'incertitude sur la production de bois. Les décisions de récolte sont étudiées ainsi que deux stratégies de couverture : une pratique financière et une pratique physique. Nous développons un modèle de décisions de couverture et de récolte à deux périodes lorsque le propriétaire valorise les services d'aménités fournis par la forêt. Nous étudions les propriétés des décisions de récolte et de couverture présentes et futures. Nous montrons que, excepté lorsque les deux instruments sont des substituts parfaits, le propriétaire choisit un seul outil, son choix dépendant du taux de rendement de la stratégie de couverture. Nous prouvons aussi que plus l'utilité marginale retirée des aménités est élevée, plus le propriétaire réduit sa récolte. Nous fournissons une analyse de statique comparative sur la récolte présente et future et sur la stratégie de couverture. Nous nous intéressons à l'impact d'un accroissement des stocks initiaux (richesse et bois), des prix du bois (périodes 1 et 2), du coût d'opportunité des instruments de couverture (taux de rendement pour la pratique financière et coût du processus de régénération pour la pratique physique) et de l'espérance de risque. Nous montrons, par exemple, qu'une hausse de l'espérance de risque a un impact négatif sur la récolte de période 1 et sur le recours aux deux instruments de couverture, alors que l'impact sur la récolte de période 2 est positif pour la pratique financière et nul pour la pratique physique.