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Timberland Investment under Both Financial and Biophysical Risk

Timberland Investment under Both Financial and Biophysical Risk <p>ABSTRACT:</p><p>We extend real options analysis of timberland investments to examine a combination of financial and biophysical risk effects on optimal investment strategies in the southeastern United States. Results show that, despite a slight downward drift in price, expected returns for loblolly pine management fall between entry and exit thresholds, indicating an optimal "hold" strategy. This is explained by an offsetting upward trend in biophysical productivity associated with climate changes across a range of modeled futures. Monte Carlo analysis indicates a small positive difference between entry and exit outcomes consistent with observed rates of expansion in timberland investments in the region. <i>(JEL D81, Q23)</i></p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Land Economics University of Wisconsin Press

Timberland Investment under Both Financial and Biophysical Risk

Mei, Bin; Wear, David N.; Henderson, Jesse D.
Land Economics , Volume 95 (2) – Apr 11, 2019
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Publisher
University of Wisconsin Press
Copyright
Copyright by the Board of Regents of the University of Wisconsin System.
ISSN
1543-8325

Abstract

<p>ABSTRACT:</p><p>We extend real options analysis of timberland investments to examine a combination of financial and biophysical risk effects on optimal investment strategies in the southeastern United States. Results show that, despite a slight downward drift in price, expected returns for loblolly pine management fall between entry and exit thresholds, indicating an optimal "hold" strategy. This is explained by an offsetting upward trend in biophysical productivity associated with climate changes across a range of modeled futures. Monte Carlo analysis indicates a small positive difference between entry and exit outcomes consistent with observed rates of expansion in timberland investments in the region. <i>(JEL D81, Q23)</i></p>

Journal

Land Economics – University of Wisconsin Press

Published: Apr 11, 2019

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