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Could the Faustmann model have an interior minimum solution?
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2016 (English)In: Journal of Forest Economics, ISSN 1104-6899, E-ISSN 1618-1530, ISSN 1104-6899, Vol. 24, 123-129 p.Article in journal (Refereed) Published
Abstract [en]

The growth of an even-aged stand usually follows a S-shaped pattern, implying that the growth function is convex when stand age is low and concave when stand age is high. Given such a growth function, the Faustmann model could in theory have multiple optima and hence an interior local minimum solution. To ensure that the rotation age at which the first derivative of the land expectation value equals zero is a maximum, it is often assumed that the growth function is concave in stand age. Yet there is no convincing argument for excluding the possibility of conducting the final harvest before the growth function changes to concave. We argue that under normal circumstances the Faustmann model does not have any interior minimum. It is neither necessary nor proper to assume that the growth function is concave in the vicinity of the optimal rotation age. When the interest rate is high, the optimal rotation may lie in the interval on which the growth function is convex, i.e. before volume or value growth culminates.

Place, publisher, year, edition, pages
2016. Vol. 24, 123-129 p.
Keyword [en]
Forest economics, Optimal rotation age, S-shaped growth curve
National Category
Economics
Identifiers
URN: urn:nbn:se:umu:diva-124941OAI: oai:DiVA.org:umu-124941DiVA: diva2:956722
Available from: 2016-08-31 Created: 2016-08-31 Last updated: 2016-08-31

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http://www.sciencedirect.com/science/article/pii/S1104689916300113

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Löfgren, Karl-Gustaf
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