The Effect of Fire Risk on the Critical Harvesting Times for Pacific Northwest Douglas-Fir When Carbon Price Is Stochastic

The forest owner’s decision regarding when to harvest, based on forest’s current worth, is analyzed using the real options approach for a representative Pacific Northwest Douglas-fir stand when the carbon price is stochastic and there is a fire risk. The problem is framed as a linear complementarity problem and solved using the fully implicit finite difference method combined with a penalty method. The fire risk results in lower option values and earlier critical harvesting times, whereas a wider carbon price range ($0–$100 versus $0–$10) produces contrary results and more responsiveness to the parameter changes.


Issue Date:
2012-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/141673
Published in:
Agricultural and Resource Economics Review, Volume 41, Number 3
Page range:
313-326
Total Pages:
14




 Record created 2017-04-01, last modified 2017-10-17

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