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Uncertainty in Forest Net Present Value Estimations
Department of Forest Sciences, University of Helsinki, Latokartanonkaari 7, 00014 Finland
Simosol Oy, Asema-aukio 2, 11130 Riihimäki, Finland
MTT, Economic Research, Latokartanonkaari 9, 00790 Helsinki, Finland
* Author to whom correspondence should be addressed.
Received: 9 August 2010; in revised form: 31 August 2010 / Accepted: 10 September 2010 / Published: 27 September 2010
Abstract: Uncertainty related to inventory data, growth models and timber price fluctuation was investigated in the assessment of forest property net present value (NPV). The degree of uncertainty associated with inventory data was obtained from previous area-based airborne laser scanning (ALS) inventory studies. The study was performed, applying the Monte Carlo simulation, using stand-level growth and yield projection models and three alternative rates of interest (3, 4 and 5%). Timber price fluctuation was portrayed with geometric mean-reverting (GMR) price models. The analysis was conducted for four alternative forest properties having varying compartment structures: (A) a property having an even development class distribution, (B) sapling stands, (C) young thinning stands, and (D) mature stands. Simulations resulted in predicted yield value (predicted NPV) distributions at both stand and property levels. Our results showed that ALS inventory errors were the most prominent source of uncertainty, leading to a 5.1–7.5% relative deviation of property-level NPV when an interest rate of 3% was applied. Interestingly, ALS inventory led to significant biases at the property level, ranging from 8.9% to 14.1% (3% interest rate). ALS inventory-based bias was the most significant in mature stand properties. Errors related to the growth predictions led to a relative standard deviation in NPV, varying from 1.5% to 4.1%. Growth model-related uncertainty was most significant in sapling stand properties. Timber price fluctuation caused the relative standard deviations ranged from 3.4% to 6.4% (3% interest rate). The combined relative variation caused by inventory errors, growth model errors and timber price fluctuation varied, depending on the property type and applied rates of interest, from 6.4% to 12.6%. By applying the methodology described here, one may take into account the effects of various uncertainty factors in the prediction of forest yield value and to supply the output results with levels of confidence.
Keywords: forest property valuation; net present value; uncertainty; forest management planning; simulation; growth and yield prediction; airborne laser scanning; forest inventory
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Holopainen, M.; Mäkinen, A.; Rasinmäki, J.; Hyytiäinen, K.; Bayazidi, S.; Vastaranta, M.; Pietilä, I. Uncertainty in Forest Net Present Value Estimations. Forests 2010, 1, 177-193.
Holopainen M, Mäkinen A, Rasinmäki J, Hyytiäinen K, Bayazidi S, Vastaranta M, Pietilä I. Uncertainty in Forest Net Present Value Estimations. Forests. 2010; 1(3):177-193.
Holopainen, Markus; Mäkinen, Antti; Rasinmäki, Jussi; Hyytiäinen, Kari; Bayazidi, Saeed; Vastaranta, Mikko; Pietilä, Ilona. 2010. "Uncertainty in Forest Net Present Value Estimations." Forests 1, no. 3: 177-193.