The Equilibrium Price Path of Timber in the Absence of Replanting
Resources for the Future DP 12-38
25 Pages Posted: 22 Aug 2012
Date Written: August 16, 2012
The forestry literature has sought to describe competitive equilibria by first solving social planning problems. This "indirect" approach may cease to be useful in determining market equilibrium if the government intervenes. The equilibrium price path of timber is characterized directly here under the assumption that once a site is cleared, the site is used for some other purpose of exogenous value. While extreme, this assumption permits us to show that familiar Herfindahl results from the Hotelling literature extend to forestry economics: if differing in age, older trees are harvested first; if different in site value, trees on more valuable land are harvested first. As trees of the same vintage (or site value) are harvested, the timber price may decline during intervals when wood volume grows faster than the rate of interest. As the concluding section suggests, some of these results reappear in special cases of the model with replanting.
Keywords: trees, forestry, Hotelling, Herfindahl, Faustmann, U-shaped price path
JEL Classification: Q23, Q30
Suggested Citation: Suggested Citation