Optimizing forest management when storms have an impact on both production and price: a Markov decision process approach

Windstorms generate windfalls that may lead to price decreases. Studies have often focused on stochastic growth and price, but considered that the link between these two risks was generally nil. In our model, we assume that storms generate windfalls and that these windfalls have an impact on timber price through volume and quality. The objective of this paper was to analyze the impact of these two effects on harvesting behavior. We considered that timber stock follows a Markov Decision Process (MDP) and that the harvesting decision is a control variable. We solved the optimal harvesting problem under storm risk with a risk-averse forest owner and when the storm has an impact on production and price. We studied the impact of a change in the storm risk distribution, the percentage of quality loss and risk aversion on the optimal harvesting decision.