Title: Timber economics of natural catastrophes
Author: Prestemon, Jeffrey P.; Pye, John M.; Holmes, Thomas P.
Source: Pages 132-141. In: M. Pelkki (ed.) Proceedings of the 2000 Southern Forest Economics Workshop. Lexington, KY.
Description: The United States regularly suffers losses of timber from a variety of catastrophic events, including hurricanes, wildfires, ice storms, and pest outbreaks. Such catastrophes can hurt timber producers through their effects on production, and prices if damages are widespread. These two forms of risk, production and price, have traditionally been examined independently of each other, but when damages are widespread the risks to production and price are not independent, they are joint. The joint nature of the risks substantially complicates the optimal response of landowners to such risks. Clarifying the implications of this joint risk is the central point of this paper. Fine-scaled events can cause investment losses to owners of killed timber but when catastrophes are widespread, salvage activities across a landscape depress prices and inventories, expanding the impacts to producers of timber undamaged by the event. While salvage gluts drive down prices in the near term and depress inventories, longer-term inventory effects can increase prices even higher than before. This would imply that when disasters first strike, owners of undamaged timber should delay harvesting, but some disturbance agents have temporal and spatial autocorrelations, which affect their medium-term production and price risks, complicating this simple rule of thumb. When disasters are prolonged over several years, as often happens with southern pine beetle, owners of undamaged timber must weigh the promise of future price rebounds against the increased production risks faced during those years of delay. Other agents have different temporal and spatial characteristics, this paper outlines the implications of these characteristics on the joint nature of price and production risk and their implications for optimal harvest decisions.
Keywords: disturbance, price shock, timber, forest economics, wildfire, price, risks, investment, disasters, pine
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Prestemon, Jeffrey P.; Pye, John M.; Holmes, Thomas P. 2001. Timber economics of natural catastrophes. Pages 132-141. In: M. Pelkki (ed.) Proceedings of the 2000 Southern Forest Economics Workshop. Lexington, KY.
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