Optimal rotation with negative discount rates: completing the picture

Colin Price

Journal of Forest Economics, 2017, vol. 29, issue PB, 87-93

Abstract: While the rotation of maximum forest rent (no discounting of revenues and costs) is sometimes discussed conceptually and calculated practically, forest economists have almost invariably focused on optimal rotation with a positive discount rate. Some circumstances, especially related to increasing marginal utility with decreasing availability per head of products, would justify use of a negative discount rate. For a logically complete suite of conditions, a means of identifying optimal rotation with such a rate is needed. Applying the usual formulation for land expectation value then produces a meaningless result. Two approaches seem to give a solution. One uses the first-order conditions for an optimum. Another uses inversion of time perspective to produce sensible-seeming results. However, for cases where the world, or the value of forest production, ends suddenly at an unpredictable time, the optimal rotation is, surprisingly, that of maximum forest rent. Where the cause of negative discount rates is of limited duration before stability or growing affluence is re-established, this “provisional optimum” can be modified responsively.

Keywords: optimal rotation; negative discount rates; land expectation value; terminal value; forest rent (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1104689916300538
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:29:y:2017:i:pb:p:87-93

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.2017.08.006

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 ().