The generalized faustmann formula

Document Type

Article

Publication Date

1-1-2014

Abstract

This chapter examines the four core areas of the generalized Faustmann formula – the management of even-aged natural stands, even-aged plantations and uneven-aged stands, as well as the development of Pressler’s indicator rate formula. Under the generalized formula, stumpage prices, stand volumes, annual incomes, regeneration costs and interest rates could vary from timber crop to timber crop. As a result, the optimal management of even-aged and uneven-aged stands also could vary from timber crop to timber crop. The optimal conditions for the decision variables are derived and their economic meanings explained. Although similar to those obtained under the classic Faustmann formula, the optimal conditions under the generalized Faustmann formula offer much broader and richer interpretations. The increment in stumpage value is shown to consist of price increment, quality increment and quantity increment. The results of comparative statics analysis showed that under the generalized Faustmann formula it is possible to untangle the impacts of changes in current and future production parameters and produce much sharper results. Pressler’s indicator rate formula is also shown to maximize the land expectation value under the generalized Faustmann formula. The chapter closes with observations on ongoing efforts and future research opportunities.

Publication Source (Journal or Book title)

Handbook of Forest Resource Economics

First Page

26

Last Page

49

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