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The Effect of Fire Risk on the Critical Harvesting Times for Pacific Northwest Douglas-Fir When Carbon Price Is Stochastic

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  • Creamer, Selmin F.
  • Genz, Alan
  • Blatner, Keith A.

Abstract

The forest owner's decision regarding when to harvest, based on forest's current worth, is analyzed using the real options approach for a representative Pacific Northwest Douglas-fir stand when the carbon price is stochastic and there is a fire risk. The problem is framed as a linear complementarity problem and solved using the fully implicit finite difference method combined with a penalty method. The fire risk results in lower option values and earlier critical harvesting times, whereas a wider carbon price range ($0–$100 versus $0–$10) produces contrary results and more responsiveness to the parameter changes.

Suggested Citation

  • Creamer, Selmin F. & Genz, Alan & Blatner, Keith A., 2012. "The Effect of Fire Risk on the Critical Harvesting Times for Pacific Northwest Douglas-Fir When Carbon Price Is Stochastic," Agricultural and Resource Economics Review, Cambridge University Press, vol. 41(3), pages 313-326, December.
    • Handle: RePEc:cup:agrerw:v:41:y:2012:i:03:p:313-326_00
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    Cited by:

    1. Patto, João V. & Rosa, Renato, 2022. "Adapting to frequent fires: Optimal forest management revisited," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    2. Ning, Zhuo & Sun, Changyou, 2017. "Forest management with wildfire risk, prescribed burning and diverse carbon policies," Forest Policy and Economics, Elsevier, vol. 75(C), pages 95-102.

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