TY - JOUR

T1 - Optimal rotations with declining discount rate

T2 - incorporating thinning revenues and crop formation costs in a cross-European comparison

AU - Price, Colin

AU - Sjølie, Hanne Kathrine

AU - Caurla, Sylvain

AU - Yousefpour, Rasoul

AU - Meilby, Henrik

PY - 2020

Y1 - 2020

N2 - Schedules of declining discount rates have been advocated, and adopted by several European governments. They undermine classical solutions to forest economics problems, especially optimal rotation. Adapting classical first-order conditions created problems of local optimisation. A global search algorithm allowed inclusion of initial costs and thinning revenues. It produced results according with expectations – lengthening rotations as time progressed – and results paralleling those for constant discount rates – shorter rotations for high productivity and unthinned crops, and with zero crop formation costs. Apparent anomalies in the pattern of rotations are the due result of opportunity costs from later rotations, which increase as discount rate declines. Sometimes the solution oscillates, usually owing to steps in the discount schedule or irregular profile of felling revenues. Inspection allows the most profitable result to be identified.

AB - Schedules of declining discount rates have been advocated, and adopted by several European governments. They undermine classical solutions to forest economics problems, especially optimal rotation. Adapting classical first-order conditions created problems of local optimisation. A global search algorithm allowed inclusion of initial costs and thinning revenues. It produced results according with expectations – lengthening rotations as time progressed – and results paralleling those for constant discount rates – shorter rotations for high productivity and unthinned crops, and with zero crop formation costs. Apparent anomalies in the pattern of rotations are the due result of opportunity costs from later rotations, which increase as discount rate declines. Sometimes the solution oscillates, usually owing to steps in the discount schedule or irregular profile of felling revenues. Inspection allows the most profitable result to be identified.

KW - declining discount rate

KW - optimal forest rotation

KW - intermediate cash flows

U2 - 10.1016/j.forpol.2020.102218

DO - 10.1016/j.forpol.2020.102218

M3 - Journal article

VL - 118

JO - Forest Policy and Economics

JF - Forest Policy and Economics

SN - 1389-9341

M1 - 102218

ER -