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

Published in

Forest Science
2003, Volume: 49, number: 5, pages: 647-656
Publisher: SOC AMER FORESTERS

SLU Authors

• Gong, Peichen

  • Department of Forest Economics, Swedish University of Agricultural Sciences
    

UKÄ Subject classification

Forest Science
Economics and Business
Social Sciences


Permanent link to this page (URI)

https://res.slu.se/id/publ/89