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Sustainability 2018, 10(9), 3290; https://doi.org/10.3390/su10093290

An Optimal Management Strategy of Carbon Forestry with a Stochastic Price

1
Estimates and Tax Analysis Department, National Assembly Budget Office, Seoul 07233, Korea
2
Department of Food and Resource Economics, Korea University, Seoul 02841, Korea
*
Author to whom correspondence should be addressed.
Received: 16 August 2018 / Revised: 7 September 2018 / Accepted: 10 September 2018 / Published: 14 September 2018
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
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Abstract

An analysis for the value of carbon forestry needs to be provided for the successful establishment of the carbon offset market in Korea. We present an optimal management strategy for a forest owner who participates in the offset market. Given a stochastic process of the timber price following a geometric Brownian motion, the profit maximization problem of the forest owner is solved. The model finds an optimal harvest time in the presence of the carbon and timber revenues with opposing time effects. Sensitivity analysis is performed with respect to the volatility rate of the timber price and the discount rate. The presented model is applied to the study of the Korean larch case to identify the threshold timber price above which it is optimal to harvest trees. View Full-Text
Keywords: forest valuation; carbon forestry; optimal harvesting time; stochastic price forest valuation; carbon forestry; optimal harvesting time; stochastic price
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Yoo, S.; Cho, Y.-S.; Park, H. An Optimal Management Strategy of Carbon Forestry with a Stochastic Price. Sustainability 2018, 10, 3290.

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