A Binomial Tree Approach to Valuing Fixed Rotation Forests and Flexible Rotation Forests Under a Mean Reverting Timber Price Process

NPV and LEV are established and common approaches to valuing single rotation and infinite rotation forests respectively, when the rotation age is fixed in advanced. More recently, Real Options approaches have been employed to value single and infinite rotation forests with a flexible harvest age. Under a stochastic timber price process, it has been shown that the valuation of a flexible rotation forest is equal or higher than that of a fixed rotation forest, because a flexible harvest regime delays the harvest if the timber price is not favourable, whereas a fixed harvest regime would proceed to harvest regardless of the price. Often, valuation of fixed and flexible rotation ages are compared using 2 different methods – NPV (or LEV) and Real Options. The latter tends to have higher data requirements, employ different assumptions and is much more complex to estimate. Because of these differences, it may be difficult to isolate the cause of the increased valuation. In this work, we apply a relatively simple Binomial Tree method from Guthrie (2009) to value both fixed rotation and flexible rotation forests. This method uses the same data, with the same assumptions for both valuations. By holding everything equal, the difference in valuation is solely attributable to the fixed versus flexible harvesting decisions. Original results for both single and infinite rotations are presented using New Zealand Radiata Pine data. Under a mean reverting timber price process, the Binomial Tree approach offers useful insights on the increased valuation due to flexible harvest decisions.NPV, LEV, Real Options, Optimal Harvest Decision, Agribusiness, Crop Production/Industries, Environmental Economics and Policy, Land Economics/Use,

Rationality and its Other

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Climate Change Mitigation Policy: The Effect of the New Zealand Emissions Trading Scheme on New Radiata Pine Forest Plantations in New Zealand

Climate change is one of the toughest challenges facing the world today. Putting a price on carbon emissions is an important step towards climate change mitigation. A cap and trade system is one of the ways to create a carbon price. The New Zealand Emissions Trading Scheme (NZETS) is the world’s first economy-wide cap and trade system that covers all sectors and all 6 greenhouse gases. Forestry is a major part of the NZETS, allowing foresters to earn carbon credits for new forests planted on and after 1st January 1990 (afforestation and reforestation). At the same time, the NZETS also makes foresters liable for harvesting new forests planted on and after 1st January 1990, and deforesting forests existing on and before 31st December 1989. In this paper, we perform an economic analysis of how a carbon price will likely affect the returns and forestry management behaviour in new forests in New Zealand. Previous works have used the NPV/LEV (fixed harvesting) analysis where the forest is assumed to be harvested (in future) at the estimated optimal rotation age regardless of timber prices at that time. Other works have employed the Real Options approaches (flexible harvesting) where sophisticated models such as Partial Differential Equations and simulations analyse the effects of bringing forward the harvest decision if timber prices are favourable, and deferring the harvest decision if timber prices are unfavourable. Often, these methods tend to have higher data requirements, employ different assumptions and are much more complex to estimate. Because of these differences, it may be difficult to compare the results of NPV/LEV analysis with Real Options. Our work here applies the binomial tree method, which is a relatively simple method that can generate both LEV (fixed harvesting) and Real Options (flexible harvesting) results on a common model with the same data requirements and assumptions. This allows for better comparability of forestry management behaviour and effects of carbon price. The forestry valuations are analysed under a stochastic timber price and a constant carbon price. This paper concludes with some implications on policy in New Zealand.Environmental Economics and Policy,

Rationality and its Other

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Topology of Function Spaces

This dissertation is a study of the relationship between a topological space X and varioushigher-order objects that we can associate with X. In particular the focus is on C(X), the setof all continuous real-valued functions on X endowed with the topology of pointwise convergence,the compact-open topology and an admissible topology. The topological propertiesof continuous function universals and zero set universals are also examined. The topologicalproperties studied can be divided into three types (i) compactness type properties, (ii) chainconditions and (iii) sequential type properties.The dissertation begins with some general results on universals describing methods ofconstructing universals. The compactness type properties of universals are investigatedand it is shown that the class of metric spaces can be characterised as those with a zeroset universal parametrised by a sigma-compact space. It is shown that for a space to have aLindelof-Sigma zero set universal the space must have a sigma-disjoint basis.A study of chain conditions in Ck(X) and Cp(X) is undertaken, giving necessary andsufficient conditions on a space X such that Cp(X) has calibre (kappa,lambda,mu), with a similar resultobtained for the Ck(X) case. Extending known results on compact spaces it is shown that if aspace X is omega-bounded and Ck(X) has the countable chain condition then X must be metric.The classic problem of the productivity of the countable chain condition is investigated inthe Ck setting and it is demonstrated that this property is productive if the underlying spaceis zero-dimensional. Sufficient conditions are given for a space to have a continuous functionuniversal parametrised by a separable space, ccc space or space with calibre omega1.An investigation of the sequential separability of function spaces and products is undertaken. The main results include a complete characterisation of those spaces such that Cp(X)is sequentially separable and a characterisation of those spaces such that Cp(X) is stronglysequentially separable