Wealth accumulation in rotation forestry – Failure of the net present value optimization?

Abstract

The rate of wealth accumulation is discussed, and an expression for a momentary rate of capital return is presented. An expected value of the wealth accumulation rate is produced. The return rates depend on any yield function. Three different yield functions are applied, two of them published in the literature, and a third one parametrized using a comprehensive growth model. A common economic objective function, as well as a third known objective function, are applied and compared with the clarified wealth accumulation rate. While direct optimization of wealth appreciation rate always yields best results, procedures gained by maximizing the internal rate of return are only slightly inferior. With external discounting interest rate, the maximization of net present value yields arbitrary results, the financial consequences being at worst devastating.

Carbon forestry compensation on estate level

“…(7) corresponds to the ratio of the partition functions of change rate of capitalization and capitalization itself [19]. It also has been recently shown that maximization of net present value of future revenues may result in financially devastating consequences [20]. Momentary capital return rate as given in Eq.…”

“…(2) was introduced in 1860 [24]; an expected value was mentioned in 1967 [25,26], however applications have been introduced only recently [19,20,13,14].…”

“…In addition to high thinnings intended to maximize capital return rate [19,20,13,14], consequences of following semi-official silvicultural guidance commonly applied in the area [28] are discussed. Thinnings are predominantly applied from below, and any rotation is terminated in clearcutting.…”

The Effect of Empirical Log Yield Observations on Carbon Storage Economics

“…Then, the expected value of the capital return rate becomes It has been recently shown that Equation (7) corresponds to the ratio of the partition functions of the change rate of capitalization and capitalization itself [29]. It also has been recently shown that the maximization of the net present value of future revenues may result in financially devastating consequences [30]. Momentary capital return rate as given in Equation 2 [21,23].…”

“…The feasibility of harvesting is investigated in five-year intervals, always considering two options: thinning or clearcut. Clearcutting expenses are lower than thinning harvesting costs, according to Parkatti et al [33], stated to be based on a productivity study of Nurminen et al In addition to high thinnings intended to maximize capital return rate [21,22,29,30,23], the consequences of following semi-official silvicultural guidance commonly applied in the area [35] are discussed. Thinnings are predominantly applied from below, and any rotation is It has been recently shown that policies based on carbon rent are equivalent to policies based on carbon sequestration subsidies and taxies [18].…”