Resource Production Under Uncertainty: A Stochastic Control Approach to Timber Harvest Scheduling

Bruce Dixon and Richard E. Howitt

American Journal of Agricultural Economics, 1980, vol. 62, issue 3, 499-507

Abstract: Most empirical natural resource management problems are intertemporal optimization problems under uncertainty. The Linear-Quadratic-Gaussian (LQG) method derives an approximate stochastic solution to such problems. The error in modeling resource dynamics and error in observing resource stocks are incorporated explicitly into the LQG problem solution. The LQG is outlined briefly and applied to the harvest-scheduling problem on the Stanislaus National Forest. The importance of knowing management preferences precisely is shown by stochastic simulations. In particular, harvest levels and the cost of a given source of uncertainty are shown to be quite sensitive to the objective function specification.

Date: 1980
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