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

Inflation vary from a cost-push inflation, Describe the basic process by wh...

Describe the basic process by which an economy moves by a business cycle.  What is meant by a demand-pull inflation?  How does a demand-pull inflation vary from a cost-push inflati

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

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

Improvement in seea over the sna , Normal 0 false false fal...

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

Overcome the barriers of having access to government data, QUESTION (i)...

QUESTION (i) "Public Sector data is seen as owned by everyone since it has been gathered about and from everyone, often compulsorily". Discuss the concepts of ‘Public data' whe

Lm-schedule, describe and illustrate the lm-schedule

describe and illustrate the lm-schedule

Mutually acceptable, Write a 6-8 page, DOUBLE SPACED review essay on one ...

Write a 6-8 page, DOUBLE SPACED review essay on one of the following titles.  Although several editions exist for some of these titles, I encourage you to select a well edited an

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

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

Emerging issues affecting the role of government, Probelm 1: (a) What ...

Probelm 1: (a) What are the main roles of Government in the economic development of a country? (b) What are some of the emerging issues affecting the role of Government?

Model of industry protection of grossman and helpman, Consider the model of...

Consider the model of industry protection of Grossman and Helpman. There are two industries A and B, each producing good X and Y respectively. All other things being equal, the dem

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