Declining discount rate, rising non-timber benefits and the optimal sequence of rotations

Colin Price and Rob Willis

Forest Policy and Economics, 2024, vol. 161, issue C

Abstract: Discount rates that decline through time prevent derivation of optimal rotations using the standard Faustmann formula. A backwards-recursive simulation has made it possible to derive an optimal sequence of rotations, including with an amenity value that rises both through crop age and through chronological time. Carbon fluxes are complex and difficult to incorporate in this backwards-recursive protocol, especially when carbon prices are predicted to change through time. An alternative forwards-recursive protocol using intelligent trial-and-error has proved capable of solving the optimal sequence of rotations for any combination of declining discount rate and rising amenity and carbon values. The optimal sequence contains rotations that generally – but not invariably – are longer by only a few years than those resulting from imposition of a uniform rotation across all crops. Their net present value is also only a little greater.

Keywords: Discounting; Faustmann; Optimal rotation; Amenity; Carbon (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:161:y:2024:i:c:s1389934124000145

DOI: 10.1016/j.forpol.2024.103161

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