Optimal forest rotation and land values under a borrowing constraint. (Q5958101)

This study relaxes the assumption of perfect capital markets in the classical Faustmann forest rotation model. A constraint on borrowing changes all the basic properties of optimal forest harvesting. Instead of a constant rotation period, an infinite chain of rotations is determined by a nonlinear difference equation. The rotation period evolves over time and approaches a stationary rotation in finite or infinite time. The length of optimal rotation, timber supply and the value of forest land depend on forest-owner-specific factors that are normally nonexistent in rotation problems. The model explains several empirical findings that cause problems for the classical versions of the Faustmann model.