EconPapers    
Economics at your fingertips  
 

Bayesian approach and extreme value theory in economic analysis of forestry projects

Thiago Taglialegna Salles, Denismar Alves Nogueira, Luiz Alberto Beijo and Liniker Fernandes da Silva

Forest Policy and Economics, 2019, vol. 105, issue C, 64-71

Abstract: Reliable estimates of price and wood yield as well as the calculation of economic criteria that include uncertainty are necessary to make the decision-making process more robust when analysing a long-term activity such as forestry. Through extreme value theory EVT combined with Bayesian inference it is possible to predict probability densities for inputs used in economic evaluation criteria like wood yield and prices. With it, uncertainties regarding the inputs can be taken into account in the economic analysis, improving the way they are obtained. Therefore, this study aimed to use Bayesian approach and EVT to estimate future price and yield to carry out an economic evaluation of a forestry project. Yield, maximum and minimum price were estimated in the form of probability density. Considering 95% of probability, the NPV calculated for the minimum price situation ranged from R$ 2050.11 to R$ 5409.07 ha−1, with a mean of R$ 3771.60 ha−1. The NPV calculated for the maximum price situation ranged from R$ 7766.77 to R$ 9070.29 ha−1, with a mean of R$ 8398.13 ha−1. These results serve as best and worst-case scenarios for managers in the case of a eucalyptus plantation established in 2017 under an outgrower scheme in Brazil. The presented methodology provided good results when estimating the variables of interest. It incorporates probability levels and/or prior information. With it, the economic performance of the project and its risks are better visualized and understood by researchers and managers.

Keywords: Growth modelling; Forest production; Net present value; Gumbel distribution (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1389934118305288
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:forpol:v:105:y:2019:i:c:p:64-71

DOI: 10.1016/j.forpol.2019.05.021

Access Statistics for this article

Forest Policy and Economics is currently edited by M. Krott

More articles in Forest Policy and Economics from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-05-02
Handle: RePEc:eee:forpol:v:105:y:2019:i:c:p:64-71