Abstract

We extend the classic Mitra and Wan forestry model by assuming that prices follow a geometric Brownian motion. We move one step further in the model with stochastic prices and include risk aversion in the objective function. We prove that, as in the deterministic case, the optimal program is periodic both in the risk neutral and risk averse frameworks, when the benet function is linear. We nd the optimal rotation ages in both stochastic cases and show that they may dier signicantly from the deterministic rotation age. In addition, we show how the drift of the price process aects the optimal rotation age and how the degree of risk aversion shortens it. We illustrate our ndings for an example of a biomass function and for dierent values of the model's parameters.