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

Difference in natural resources and other tangible assets, Normal 0 ...

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

Competitive Equilibrium, Alice and Bob survive on hamburgers and salads. Al...

Alice and Bob survive on hamburgers and salads. Aliceís utility function is UA = hA(sA 1) where hA and sA are her consumption of hamburgers and salads respectively. Bobís utility

Explain hoe perception affected theory symbolic inte, sensors see details a...

sensors see details and seek detail and precision intuitions see generalities

Theory of environmental policy, Normal 0 false false false ...

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

Metals and melting practices - charging, Metals and Melting Practices - Cha...

Metals and Melting Practices - Charging,Coke,Flux,Hearth Charging : An operation in which raw materials are added up to a furnace. Coke : An impure form of carbon that is

Contingent ranking method, Normal 0 false false false E...

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

Privatisation, Ask quedoes privatisation decentralise economic power stion ...

Ask quedoes privatisation decentralise economic power stion #Minimum 100 words accepted#

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