An Optimal Management Strategy of Carbon Forestry with a Stochastic Price

Sora Yoo, Yong-sung Cho and Hojeong Park
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Sora Yoo: Estimates and Tax Analysis Department, National Assembly Budget Office, Seoul 07233, Korea
Yong-sung Cho: Department of Food and Resource Economics, Korea University, Seoul 02841, Korea
Hojeong Park: Department of Food and Resource Economics, Korea University, Seoul 02841, Korea

Sustainability, 2018, vol. 10, issue 9, 1-13

Abstract: An analysis for the value of carbon forestry needs to be provided for the successful establishment of the carbon offset market in Korea. We present an optimal management strategy for a forest owner who participates in the offset market. Given a stochastic process of the timber price following a geometric Brownian motion, the profit maximization problem of the forest owner is solved. The model finds an optimal harvest time in the presence of the carbon and timber revenues with opposing time effects. Sensitivity analysis is performed with respect to the volatility rate of the timber price and the discount rate. The presented model is applied to the study of the Korean larch case to identify the threshold timber price above which it is optimal to harvest trees.

Keywords: forest valuation; carbon forestry; optimal harvesting time; stochastic price (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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