Optimal Harvest Strategy for Slash Pine Plantations: The Impact of Autocorrelated Prices for Multiple Products

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Using the management regimes of slash pine plantations in Georgia as an example, this article examines the impact of serially correlated prices for multiple outputs on harvest decision and financial performance. A stochastic dynamic programming model is formulated to derive the optimal harvest strategy numerically. While the general rule remains to harvest when the observed stumpage prices are greater than the reservation prices, our results show that there exist multiple pairs of reservation prices at each stand age, and these reservation prices cannot be reduced to a single one. This is in contrast to cases where prices are independent over time. Intensive silvicultural practices (e.g., herbicide use and fertilization) can reduce the reservation price and the variance of the financial return, but push up the mean return of a plantation project. Simulations with alternative price processes reveal that ignoring price uncertainty or price autocorrelations results in lower expected level but greater variability of the financial return and thus reduces investments by risk-averse investors. FOR. SCI. 50(1):10–19.

Keywords: Forest management; decision analysis; environmental management; forest; forest management; forest resources; forestry; forestry research; forestry science; natural resource management; natural resources; reservation price; rotation age

Document Type: Regular Article

Affiliations: 1: Department of Forest Economics Swedish University of Agricultural Sciences Umeå Sweden SE-901 83 Phone: +46 90 786 6272;, Fax: +46 90 786 6073, Email: Peichen.Gong@sekon.slu.se 2: Department of Forestry, College of Agriculture and Natural Resources Michigan State University East Lansing MI 48824 Phone: (517) 432-3352;, Fax: (517) 432-1143, Email: yinr@msu.edu

Publication date: February 1, 2004

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