A generalized Faustmann rotation formula with stochastic growth
This paper derives a generalized, closed-form Faustmann rotation formula that applies to stochastic forest growth. The expected profit function of the problem is found by use of the markup approach to investment proposed by Dixit et al. (1999), and the new rotation formula appears as the first-order condition for a maximum. The relationship with the Wicksell model - that ignores the rotation aspect of the Faustmann model - is emphasized and explored. The rotation formula is discussed for two sets of cost assumptions: one where the cost of each rotation is exogenous and fixed, and another one where this cost is endogenous, and to be chosen optimally. Specific examples are compared with results from Willassen (1998), that also discusses the stochastic Faustmann problem but only when costs are fixed, without reaching a closed-form rotation formula, and using more advanced techniques.
Publisert i 1999
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