ABSTRACT
One of the oldest theoretical problems in forestry is to determine the best age at which to cut down a tree or stand of trees. A formulation of the problem, using the notions of capital theory was given by Faustmann in 1849. This chapter discusses the effects of the risk of fire or other unpredictable catastrophe on the optimal rotation period of a forest stand. It demonstrates that when fires occur in a time-independent Poisson process, and cause total destruction, the policy effect of the fire risk is equivalent to adding a premium to the discount rate that would be operative in a risk-free environment. The chapter also describes other cases and in each a modified form of the Faustmann formula is derived and a "marginal" economic interpretation given. The commercial value of a tree, or more realistically, a stand of trees is customarily expressed as stumpage value.
