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

Discuss basic features of international policy coordination, Discuss the ba...

Discuss the basic features of international policy coordination. There may be two sources of interdependence between national economic policies, club goods and horizontal spill

OPTIMAL COMMODITY, State ramsey rule of optimal commodity taxation and the ...

State ramsey rule of optimal commodity taxation and the intuition for it

Usefulness of environmental accounting, Normal 0 false false ...

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

Tell me about free publicity, Free Publicity is only the periodical subscri...

Free Publicity is only the periodical subscription. This is only in newsletter in which one spills the guts about publicity. It is your chance to tap into one's brain and dig out a

Who permits government whatever it does, Q. Who permits government whatever...

Q. Who permits government whatever it does? The simple answer can be: people in a democracy and the monarch/dictator in a monarchy/dictatorship. But neither monarchy exists in

Tr and tc curves explain-open-access optimum, Explain the following: (Cr...

Explain the following: (Critically Depensated) Growth Function                         Sustainable Yield Functions                         Logistic Growth Function

Economic implications, The State attempts to oversee, as exemplified by Art...

The State attempts to oversee, as exemplified by Art. 39 (b) and (c) of our Constitution, that private activities may not cause harm to the common good and in case they do so corre

Production, Types of production function

Types of production function

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