Timber Supply, Amenity Values and Biological Risk
Abstract
This paper uses the Kreps-Porteus-Selden non-expected utility approach to study the effects of biological risk on harvesting behavior when forest owners have a quasi-linear utility function, linear in harvest revenue and concave in amenity services. Biological risk is assumed to be associated with either forest growth or the initial forest stock, and it may show up either in multiplicative or additive form. It is shown that a rise in multiplicative forest growth risk increases current but decreases future harvesting, which can be interpreted as a precautionary motive due to riskier return on future harvesting. But higher timber stock risk decreases current timber supply, because it lessens the certainty equivalent value of random-forest stocks and thereby increases the marginal utility of amenity services. Moreover, the source and type of biological risk also matters for the marginal propensity to harvest out of stock. It is between zero and unity for multiplicative stock risk and unity in the other cases. In the former case the marginal propensity to harvest is not usually constant thus suggesting that the size distribution of forest stock affects aggregate timber supply.
Reference
Erkki Koskela; Markku Ollikainen. (1999). Timber Supply, Amenity Values and Biological Risk. Journal of Forest Economic. https://doi.org/10.1108/j.jfe.1999.07.007
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