Faustmann vs. real options theory – An experimental investigation of foresters’ harvesting decisions

Philipp A. Sauter, Oliver Musshoff, Bernhard Möhring and Stefan Wilhelm

Journal of Forest Economics, 2016, vol. 24, issue C, 1-20

Abstract: Among the most complex decisions in forestry is the decision of when to harvest a stand. Many investment theories have been established and adjusted to maximize profit, yet limited knowledge is available regarding the predictive power of theories. Understanding foresters’ harvesting behavior, however, is important for forest management and policy support. Thus, the question arises as to what extent risky harvesting decisions comply with economic theories. Therefore, we conduct an incentive-based economic experiment with 107 forestry decision makers in order to analyze this research question. This approach is well-established in the field of behavioral economics since it has the advantage of analyzing certain economic parameters isolated from further aspects of the decision situation. We use the Faustmann–Pressler–Ohlin theorem and a real options approach as normative benchmarks. The present study provides evidence that none of the examined theories fully comply with the observed behavior. However, the harvesting behavior coincides significantly more with the real options theory than with the Faustmann–Pressler–Ohlin theorem. It can thus be stated that a higher degree of education leads to decisions that are more in accordance with the real options theory.

Keywords: Experimental economics; Forest harvesting decision; Real options approach; Faustmann–Pressler–Ohlin theorem; Risk attitude; Forest management; Policy support (search for similar items in EconPapers)
JEL-codes: C93 D22 Q23 Q28 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1104689916000052
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:foreco:v:24:y:2016:i:c:p:1-20

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/701775/bibliographic
http://www.elsevier. ... 701775/bibliographic

DOI: 10.1016/j.jfe.2016.01.004

Access Statistics for this article

Journal of Forest Economics is currently edited by P. Gong and R. Brännlund

More articles in Journal of Forest Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().