Impacts on economically optimal timber rotations when future land use changes

Abstract

Based on a perpetual rotation assumption, changes in selected variables will have effects on the even-aged timber clearcut age (rotation) that maximizes net present value using the Faustmann formula. Alternatively, one can assume that landowners project a postharvest change in land use with a land value equal to or exceeding today's Faustmann value and that this future land value is independent of their assumed values for variables like annual costs, annual revenues, stumpage prices, and income taxes. In that case, the impact of changes in the foregoing variables on optimal rotations may be substantially greater, and sometimes in the opposite direction, compared to the standard Faustmann approach. Moreover, a higher estimated postharvest land value can shorten the optimal rotation. With a loblolly pine yield function, these rotation differences are demonstrated, using the standard, perpetual Faustmann formula and a rotation-end land use change adaptation with a fixed projected land value. Appendixes include mathematical verifications. The different interpretations depend on whether one considers the Faustmann land value as the land market value in a general equilibrium sense, or whether one takes the future market value of land as given and performs sensitivity analyses of alternative scenarios. Policy implications are difficult to assess without more research on landowner behavior.