Efforts to increase wood mobilization have highlighted the need to appraise drivers of short-run timber supply. The current study aims to shed further light on harvesting decisions of private forest owners, by investigating optimal harvesting under uncertainty, when timber revenues are invested on financial markets and uncertainty is mitigated by news releases. By distinguishing between aggregate economic risk and sector specific risks, the model studies in great detail optimal harvesting-investment decisions, with particular emphasis on the non-trivial transmission of risk on optimal harvesting, and on the way private forest owners react to news and information. The analysis of the role played by information in harvesting decisions is a novelty in forest economic theory. The presented model is highly relevant from a policy—information is a commonly used forest policy instrument—as well as a practical perspective, since the mechanism of risk transmission is at the basis of timber pricing.
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[25]
In what follows we will use the terms “agent”, “individual” and “landowner” interchangeably, without special or technical meanings, unless otherwise stated.
[26]
The case of a signal on the forest sector will be treated in a separate section.
[27]
CARA (constant absolute risk aversion) utility is a class of utility functions u(w) characterized by the property that the associated risk aversion coefficient usually defined as ？ u′′(w)/u′(w) is a constant parameter and does not vary with the wealth level.
[28]
In such an instance, final wealth would be w = p2x2 + p1x1 (1 + rf).
[29]
We refer the Reader to the next section in order to obtain additional insight on this result.
[30]
Indeed higher risk makes the signal less credible and the absolute value of the variation in the short-run timber supply induced by an increase in financial risk is higher in case of good news.
[31]
Indeed .
[32]
In the case of a negative signal, current harvesting always increases with economic risk.
[33]
Notice that we are implicitly assuming that ？γp2/？α > 0, that is σa2α2 ≤ σi2 + σs2, which is generally the case for realistic values of σa2, α, σi2, σs2.
