Planting and Harvesting Decisions: A Review and Extension to the Case of Two Alternative Tree Species

Abstract

When to optimally harvest even-aged trees is a dominant concern in forest economics. In the literature, it was considered when the land is available for just one harvest (Wicksell setting) or multiple harvests (Faustmann setting). In this chapter, we will review the rotation lengths under both settings and focus on the impact of timber price variations on planting and harvesting decisions when one or two tree species are available for planting. When timber prices are rising but a species must be replaced by a more attractive species, rotation lengths before the switch are either constant and equal to the Faustmann's rotation, increasingly higher than the Faustmann's rotation, or decreasingly lower than the Faustmann's rotation. If timber prices are stochastic, forest managers prefer longer rotation lengths when the switch to the alternative tree species is about to occur as a means of postponing decision-making and waiting for more information related to timber prices. The possibility of replacing the planted species with an alternative species increases the land value, especially when timber prices are uncertain.