The Handbook of Commodity Investing

CHAPTER 6

The Optimal Rotation Period of Renewable Resources: Theoretical Evidence from the Timber Sector

Dr. Fritz Helmedag

Professor of Economics

Chemnitz University of Technology

Wood has always been and still is one of the most important natural substances. It can be used for light and warmth, as a raw material for furniture, and the construction of buildings and boats. Trees cover approximately one third of the earth's surface. About 2 billion tons of timber are harvested per annum, which is more than the yearly output of steel and cement taken together. These figures alone suffice to justify that the economics of forestry is put on the agenda. In the face of discussions on climate change and the vital role of renewable resources, the optimal cutting strategy deserves special attention. For about two centuries, however, this issue has been under investigation. Actually, the answer to the question when to log a tree depends on the specific goal of the decision maker. This fact has not always been stated precisely. The chapter provides a survey of the different approaches and clarifies the conditions for their application.

PRODUCTION AS A TIME CONSUMING PROCESS

The production of a good is a process of varying length. Nevertheless, in the majority of cases, it can be organized in a way that there is a continuous flow of more or less finished products, some just being started and others completed. Besides that, in special branches, a certain period of time has to elapse in order ...