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Risk management behaviour of a forest owner against growth risk

Author

Listed:
  • Marielle Brunette

    (LEF - Laboratoire d'Economie Forestière - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

  • Stéphane S. Couture

    (UBIA - Unité de Biométrie et Intelligence Artificielle (ancêtre de MIAT) - INRA - Institut National de la Recherche Agronomique)

Abstract

The objective of this paper is to analyse the risk management behaviour of a non-industrial private forest owner in relation to uncertainty about timber growth and in the case where the owner values the amenity services of the forest. Two types of risk management instruments are studied: a financial savings versus a physical savings. We have developed a two-period model in which we study the properties of optimal current and future harvesting and risk management decisions. We show that the forest owner will always choose the tool with the higher rate of return except when both risk management instruments are perfect substitutes. In the same way, imposing a constraint on forest surface can lead the owner to jointly use the two risk management instruments. We also prove that future harvesting is higher with physical savings than with financial ones. The effect of an increase in amenity preferences is to decrease optimal future harvesting but to increase the use of risk management tools. Comparative static results on incomes, forest stocks, timber prices and opportunity costs are also investigated. Finally, we show that public intervention can affect the risk management decisions of forest owners.

Suggested Citation

  • Marielle Brunette & Stéphane S. Couture, 2013. "Risk management behaviour of a forest owner against growth risk," Post-Print hal-01001281, HAL.
    • Handle: RePEc:hal:journl:hal-01001281
    as

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    Citations

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    Cited by:

    1. Marielle Brunette & Stephane Couture, 2018. "Risk management activities of a non-industrial privateforest owner with a bivariate utility function," Review of Agricultural, Food and Environmental Studies, INRA Department of Economics, vol. 99(3-4), pages 281-302.
    2. Sauter, Philipp A. & Mußhoff, Oliver & Möhring, Bernhard & Wilhelm, Stefan, 2016. "Faustmann vs. real options theory – An experimental investigation of foresters’ harvesting decisions," Journal of Forest Economics, Elsevier, vol. 24(C), pages 1-20.
    3. Brunette, M. & Holecy, J. & Sedliak, M. & Tucek, J. & Hanewinkel, M., 2015. "An actuarial model of forest insurance against multiple natural hazards in fir (Abies Alba Mill.) stands in Slovakia," Forest Policy and Economics, Elsevier, vol. 55(C), pages 46-57.
    4. Sandrine Spaeter, 2021. "How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage," Working Papers of BETA 2021-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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