Integrating fire risk into the management of forests

Pedro Vieira

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In a standard cash-flow data-sheet analysis, the quantification of the impact of exogenous variables and management decisions on the investment’s Net Present Value is limited to only a few scenarios. This perspective is insufficient for an efficient risk management in complex business environments. In this work, I present a dynamic programming model that takes into consideration fire risk. Having applied the model to forest management, I conclude that when fire risk increases, it is optimal for the manager to increase the area used per tree and the cut-off weight of stems. Rather than increasing the business Expected Net Present Value (that, with real interest rate of 3%/year, is between 1.5€/m2 and 2.2€/m2), the optimal strategy decreases the business risk. Additionally, I conclude from the model that there is no private incentive to carry out fire risk prevention.

Keywords: Risk Management; Project Evaluation; Expected Net Present Val (search for similar items in EconPapers)
JEL-codes: C61 D81 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2008-09
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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:290

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