Marielle Brunette

Economics of species change subject to risk of climate change and increasing information: a (quasi-)option value analysis

ContextIn the context of climate change, several forest adaptation options have to be advocated such as a shift to more resistant species.AimsWe provide an economic analysis of timber species change as a tool for adapting forests to climate change.MethodsWe use the framework of cost–benefit analysis, taking uncertainty into account both exogenously (sensitivity analysis) and endogenously [(quasi-)option value calculations]. We apply the method to assess the economic rationale for converting Norway spruce stands to Douglas-fir in the French Black Mountain.ResultsWe find that the Douglas-fir conversion is land expectation value (LEV) maximizing under a wide range of a priori (subjective) probabilities attached to high mortality of Norway spruce under climate change (for probabilities higher than 0.25–0.31). If information about the impacts of climate change is expected to increase over time, and given the large sunk costs attached to conversion, a delay strategy may be preferable to transition and to status quo when the impacts of climate change on Norway spruce mortality are sufficiently ambiguous. In such cases, getting information earlier increases the LEV by €5–60/ha.ConclusionBeyond the specifics of the case study, this paper suggests that quasi-option value is a relevant tool to provide insights to forest owners dealing with adaptation decisions in the context of climate change.

Attitude towards Risk and Production Decision: An Empirical analysis on French private forest owners

This paper deals with the forest owner’s attitude towards risk and the harvesting decision in several ways. First, we propose to characterize and quantify the forest owner’s attitude towards risk. Second, we analyze the determinants of the forest owner’s risk attitude. Finally, we determine the impact of the forest owner’s risk attitude on the harvesting decision. The French forest owner’s risk attitude is tackled by implementing a questionnaire, including a context-free measure borrowed from experimental economics. The determinants of the forest owner’s risk attitude and harvesting decision are estimated through a recursive bivariate ordered probit model. We show that French forest owners are characterized by a relative risk aversion coefficient close to 1 with a DARA assumption. In addition, we find that the forest owner’s risk aversion is influenced positively and significantly by the level of risk exposure, the geographical location of the forest and the fact to be a forester, and negatively by the income. Finally, we obtain that the forest owner’s risk aversion has a positive and significant impact on the harvesting decision.

Optimising forest management under storm risk with a Markov decision process model

Windstorms generate windfalls that may lead to price decreases. Studies often focus on stochastic growth and price, but consider that there is no link between these two risks. 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 is to analyse the impact of these two effects on harvesting behaviour. We consider that the dynamic of the timber stock follows a Markov decision process and that the harvesting decision is a control variable. We solve 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 study the impact of a change in the storm risk distribution, the percentage of quality loss and risk aversion on the optimal harvesting decision. We show that the greater the storm risk is, the greater the harvesting will be. In addition, we observe no noticeable effect of an increase in the percentage of quality loss on harvesting. Moreover, when the forest owner’s risk aversion increases, the harvesting is reduced. Finally, we discuss our results, in particular, in relation to climate change.

Risk Management Behavior of a Forest Owner to Address Growth Risk

We analyze risk management behavior (financial savings versus physical savings) of a private forest owner who values amenities in relation to uncertainty about timber growth. In a two-period model, we study the properties of optimal current and future harvesting and risk management decisions. We show that the forest owner chooses the tool with the highest rate of return unless both risk management instruments are perfect substitutes. We prove that future harvesting is greater under physical savings than under financial savings. Comparative static results on amenity preferences, incomes, forest stocks, timber prices, and opportunity costs are investigated.

Is forest insurance a relevant vector to induce adaptation efforts to climate change

Abstract• Key messageInsurance might be an efficient tool to strengthen adaptation of forest management to climate change. A theoretical model under uncertainty is proposed to highlight the effect, on adaptation decisions, of considering adaptation efforts in forest insurance contracts. Results show that insurance is relevant to increase adaptation efforts under some realistic conditions on forest owner’s uncertainty and risk preferences, and on the observability or not of adaptation efforts.• Context One of the challenges of forest adaptation to climate change is to encourage private forest owners to implement adaptation strategies.• Aims We suggest the analysis of forest insurance contracts against natural hazards as a vector to promote the implementation of adaptation efforts by private forest owners.• Methods We propose a theoretical model of insurance economics under risk and under uncertainty.• Results Our results indicate that when climate change makes the probability of the occurrence of the natural event uncertain, then it may be relevant to include adaptation efforts in the insurance contract, leading to an increase in the adaptation efforts of risk-averse and uncertainty-averse forest owners. In addition, we show that the relevance of insurance as a vector to promote adaptation efforts is greater when the forest owner’s effort is unobservable by the insurer as compared to a situation of perfectly observable effort.• Conclusion Under some realistic assumptions, the forest insurance contract seems to be a relevant tool to encourage forest owners to adapt to climate change.

An economic comparison of risk handling measures against Hylobius abietis and Heterobasidion annosum in the Landes de Gascogne Forest

Abstract•  Key messagePhytosanitary risks are an increasing threat for forest, particularly due to climate change. Risk handling measures are effective economic strategies to manage such risks, so that Economics may provide relevant methodology to address this new challenge.•  ContextHylobius abietis and Heterobasidion annosum are two phytosanitary risks generating increasing damage in the Landes de Gascogne Forest.•  AimsWe provide an economic comparison of different existing risk handling measures against Hylobius abietis and Heterobasidion annosum.•  MethodsWe use the Land Expectation Value, i.e., Faustmann criteria, to compare the different scenarios•  ResultsWe find that for Hylobius abietis, chemical treatment and fallow seem to be economically preferable to the absence of risk handling measure. For Heterobasidion annosum, we show that local stump removal is always preferable to total stump removal and chemical treatment. Local stump removal should be preferred to fallow when contamination occurs during the second thinning. Finally, our results indicate that fallow is always preferable to chemical treatment.•  ConclusionBeyond the specificities of the case study, the paper proposes amethodology to analyze such a problematic.

Amenities and Risk in Forest Management

The objective of the paper is to analyze the risk management behavior of a non-industrial private forest owner under uncertainty about timber production. Two types of hedging strategies with harvesting decisions are studied: a financial practice versus a physical one. We develop a two-period model of hedging and harvesting decisions when the forest owner values the amenity services of forest. We study the properties of optimal current and future harvesting and hedging decisions. We show that, except when both hedging instruments are perfect substitutes, the forest owner chooses a single tool, her/his choice depending on the rate of return of the hedging instrument. We also prove that the greater the marginal utility of amenity services, the smaller the harvesting amount. We provide a comparative statics analysis on current and future harvesting and on the hedging strategies. We are interested in the impact of an increase in initial stocks (wealth and timber), timber prices (periods 1 and 2), opportunity costs of the hedging instruments (rate of return for savings and cost of the regeneration process for physical practice) and expected risk. We show, for example, that an increase in expected risk has a negative impact on period 1 harvesting and the use of hedging tools for both strategies, while the impact on period 2 harvesting is positive for savings and null for physical practice.