Timberland Investment under Both Financial and Biophysical Risk

Bin Mei, David N. Wear and Jesse D. Henderson

Land Economics, 2019, vol. 95, issue 2, 279-291

Abstract: We extend real options analysis of timberland investments to examine a combination of financial and biophysical risk effects on optimal investment strategies in the southeastern United States. Results show that, despite a slight downward drift in price, expected returns for loblolly pine management fall between entry and exit thresholds, indicating an optimal “hold†strategy. This is explained by an offsetting upward trend in biophysical productivity associated with climate changes across a range of modeled futures. Monte Carlo analysis indicates a small positive difference between entry and exit outcomes consistent with observed rates of expansion in timberland investments in the region.

JEL-codes: D81 Q23 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.3368/le.95.2.279
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:uwp:landec:v:95:y:2019:i:2:p:279-291

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