Risk Aversion and Optimal Rotation: a Stochastic Efficiency Approach

Author(s)
Lien, G
Stordal, S
Hardaker, J B
Publication Date
2004
Abstract
Proceedings of the Biennial Meeting of the Scandinavian Society of Forest Economics
Abstract
A new stochastic efficiency analysis approach, called stochastic efficiency with respect to a function (SERF), that partitions a set of risky alternatives in terms of certainty equivalents (CEs) for a specified range of attitudes to risk, is applied to analyse average optimal rotation strategies at different levels of forest owner's risk aversion. Using Norwegian forest data with stochastic timber price and volume growth, the empirical results show that the optimal rotation length increases with increasing degree of risk aversion. It is also found that the effect of risk aversion is lower with higher interest rates, while the size of the investment cost affects only the level of the CE, with the forest owner's risk aversion being relatively unimportant.
Citation
Scandanavian Forest Economics, v.40, p. 91-99
ISSN
0355-032X
Link
Publisher
Scandinavian Society of Forest Economics
Series
Scandinavian Forest Economics
Title
Risk Aversion and Optimal Rotation: a Stochastic Efficiency Approach
Type of document
Conference Publication
Entity Type
Publication

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