On the Faustmann solution to the forest management problem
The forest management problem is concerned with the pattern of planting and harvesting trees in order to maximize the undiscounted or discounted sum of utilities determined by the timber content of trees harvested in any time period. The Faustmann solution [see \textit{M. Faustmann}, Berechnung des Wertes, welchen Waldböden, sowie noch nicht haubare Holzbestände, für die Weltwirtschaft besitzen, Allgemeine Forst- und Jagdzeitung 25 (1849)] to this problem is the following: The whole land should be planted with seedlings initially, and all seedlings should be allowed to grow to a certain age (M), at which the whole forest should be cut down and replanted with seedlings. This process should be repeated indefinitely. In this paper the above problem is analyzed, when future utilities are undiscounted. It will be shown that (i) for a linear utility function the Faustmann periodic solution is indeed optimal; (ii) for a strictly concave utility function an optimal solution converges to the maximum sustained yield solution, which is characterized as a golden rule. From the mathematical point of view the paper relates to the literature on optimal intertemporal allocation, particularly to the results and methods of \textit{W. A. Brock} [Rev. Econ. Stud. 37, 275-280 (1970; Zbl 0212.239)], \textit{D. Gale} [ibid. 34, 1-18 (1967)], and \textit{L. W. McKenzie} [in: Value, capital and growth (J. N. Wolfe, ed.), 353-383, Edinburgh Univ. Press, Edinburgh (1968)].
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