Optimal harvesting age, Public Economics

Assignment Help:

Optimal Harvesting Age

Let there be a per unit regeneration cost C. The timber growth  is measured  by volume V(T) which is a function of the age of the timber T. Attaching a price P,  the maximum present value of the stand represented by λ is,

Equation 1

437_Optimal Harvesting Age.png

The first order condition gives us

Equation 2

PV' (T) = iPV (T) + i λ

Where V’ is the first order derivative of V.

The results indicate that, the Faustmann harvest age TF, is the one at which the marginal increase in value from delaying the harvest equals opportunity cost of delaying the harvest. The opportunity cost includes the potential interest income foregone on the delayed receipt of current harvest revenues plus the interest cost of delaying receipts from future harvest cycles. The second component reflects an implicit rental cost of land. The optimum T is popularly known as 'Faustmann Rotation Age'. Let us denote it by TF.

The first order condition equation 2 can be rewritten to give us the Faustmann condition

Equation 3

 1425_Optimal Harvesting Age 2.png

Equation 3 can be interpreted as, 'hold timber stocks uncut until the rate of growth in the combined asset value of timber and land just equals market rate of interest'.

 

 

 


Related Discussions:- Optimal harvesting age

Summary of green accounting, Normal 0 false false false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Cable tax to the satellite tax, According to estimates by Goolsbee and Petr...

According to estimates by Goolsbee and Petrin (2004), the elasticity of demand for basic cable service is ?0.51, and the elasticity of demand for direct broadcast satellites is ?7.

Financial deregulation - regulations and competition policy, Consider a cas...

Consider a case, if an insurance company merges with a bank. We know that insurance company bears risk for insurers. Suppose, after merger, bank gets in some trouble for reasons ot

Policy frameworks and decision process, With a background from the previous...

With a background from the previous section we now study some of the critical characteristics of policy process. You have already studied earlier various technical theories relatin

Affirmative action and anticorruption programme, A change in the legal stat...

A change in the legal statute may be able to force an equilibrium if it leads to a new equilibrium which implies some revised belief which sustains the equilibrium. Tirole (1996)

Categories of mbis, Normal 0 false false false EN-IN ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Cost-based methods - replacement cost , Normal 0 false false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

International trade and finance, explain how under the WTO differential tre...

explain how under the WTO differential treatment in reverse is different from the special and differential treatment

How important is policy implementation, Question 1: "A Policy may be de...

Question 1: "A Policy may be defined as a major course of action within a given environment intended to reach a goal or realize an objective." Give an account of the making

Budget, what is the difference between budget deficit and fiscal deficit

what is the difference between budget deficit and fiscal deficit

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd