Acquisition of a Forest Estate: A Stochastic Optimization Approach for Financing and Management
This article addresses the financing and managing problem of a private investor who considers purchasing a forest estate. The focus is on financing the investment, timing of harvesting, and financial and nonfinancial benefits over years succeeding an acquisition. We take into account uncertainty concerning future timber prices, real rate of interest, and rate of inflation. To aid in the solution of the problem, we propose a multistage stochastic optimization model. The total amount of loan available is assumed given, while alternative interest and repayment schedules are considered for loans. The model accounts for the initial state of the forest, growth, and allowable cutting. The objective function is the expected utility. In an illustrative example, the utility for a risk averse investor is based on income for consumption. Variations of this model demonstrate the use of decision aids. These concern valuation of a forest estate, initial age distribution of forest stands, timber price volatility, initial equity, time-varying preferences for consumption, and nonfinancial benefits. For. Sci. 49(5):706–718.
natural resource management;
Document Type: Miscellaneous
Cadastral Producers, National Land Survey of Sweden, Gävle, Sweden, 80182, Phone: 46 26 63 30 27 email@example.com
Department of Forest Management and Products, The Swedish University of Agricultural Sciences, Box 7060 Uppsala, Sweden, 750 07, Phone: +46 18 67 24 96; Fax: +46 18 67 34 90 Lars.Lonnstedt@ekon.slu.se
Helsinki School of Economics, POB 1210 Helsinki, Finland, FIN-00101, Phone: +358 9 431 38278 firstname.lastname@example.org
Publication date: October 1, 2003
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Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
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