Optimal harvesting and thinning with stochastic prices

This article rigorously incorporates optimal thinning decisions for an even-age stand into an optimal harvesting model with fluctuating stumpage prices. The theoretical model optimally determines how often and at what ages to thin when stumpage prices are independently drawn from a stationary distribution. New theoretical results include increases in the net present value of both land and stumpage, and an increase in some harvest reservation prices from introducing thinning. A simplified model is numerically simulated using parameters estimated from Dutch data for Pinus sylvestris to determine when to thin. The simulation results suggest that the gains from incorporating thinning are significant when compared to the Faustmann approach and at least modestly important when compared to optimal harvesting models without thinning. The simulation results also indicate that expected thinning age may decrease significantly while the expected harvest age increases, when compared to the Faustmann approach.