Handbook of Environmental and Resource Economics
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Handbook of Environmental and Resource Economics

Edited by Jeroen C.J.M. van den Bergh

This major reference book comprises specially commissioned surveys in environmental and resource economics written by an international team of experts. Authoritative yet accessible, each entry provides a state-of-the-art summary of key areas that will be invaluable to researchers, practitioners and advanced students.
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Chapter 9: Renewable Resources: Forestry

T. Aronsson and K.-G. Löfgren


Thomas Aronsson and Karl-Gustaf Lojgren 1. Introduction The proper economic management of forests is one of the classic problems in renewable resource economics. Already at the beginning of the nineteenth century there was a public discussion in Germany about the best time to cut down a forest stand and start a regeneration. The famous German location theorist, Johan von Thunen, attacked the problem in the third volume of Der Isotierte Staat (1826), which was published posthumously in 1863 by H. Schumacher. As it turned out, von Thunen’s solution was not quite correct. In the middle of the century, however, the German forester, Martin Faustmann, in an attempt to rectify an error in a previous paper by von Gehren, posed the problem in a correct manner. He formulated it as a rotation problem, where a new generation follows upon each harvest. The land value, in this context, is found by calculating the present value of all future net revenues from the harvests. Von Gehren had only considered the case when the forest land is bare of trees, and in the calculations in his main text he used the geometric mean interest, whereas Faustmann used compound interest rates. Faustmann also studied the case in which the valuation problem starts with trees standing on the forest land. To maximize land value, one has to choose the harvest time optimally. It is intuitively obvious that, if prices, the interest rate, and the biotechnology remain unchanged, then each rotation will, under an infinite time horizon,...

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