Effects of Public Compensation for Disaster Damages on Private Insurance and Forest Management Decisions

Politicians have a tendency to compensate victims of natural disasters. This article explores the impact of such public relief programmes on a non-industrial private forest owner’s insurance expenditures or on forest management activities. We develop a theoretical model of insurance demand or forest management activities in a risky context with a finite number of states of nature and a loss proportional to the forest value. The model predicts the optimal private expenditures of insurance and forest management activities. The comparative static effects of variations in the level of insurance price, attitudes toward risk, stand value, and the magnitude and frequency of the public compensation on insurance expenditures and on forest management activities are also characterised, and their implications for government policies are examined. Providing public financial assistance after a natural catastrophe may reduce the incentives of nonindustrial private forest owners to invest in insurance and protective measures prior to a disaster.Forest management, risk, insurance, public compensation, comparative statics

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.forest management, forest growth and natural risk, self-protection in forestry, savings and risk

Hedging Strategies in Forest Management

The paper focuses on forests management strategies for natural hazards of nonindustrial owners, in the case where the forest provides nontimber services. We introduce a basic two-period model where the private owner manages natural hazards on his forest thanks to the accumulation of savings on his individual income, or to the adoption of sylvicultural practices. We show that: 1/ the harvesting rule, in the presence of amenity services and a random growth rate for forest, is smaller than the one predicted under the Faustmann's rule; 2/ savings and sylvicultural pratices may be seen as perfectly substitutable tools for the management of natural hazards. However, our analysis predicts that the harvesting rule displays a specific sensibility to price effects and/or changes in the distribution of natural hazards, depending on whether forest owners opt for the financial strategy or undertake sylvicultural practices.Risk; Forest; Amenities; Savings and Sylvicultural Practices

Assurances et activités de réduction des risques en foresterie : une approche théorique

Cet article propose un modèle théorique (utilité espérée et risque multiplicatif) de choix d’activités de réduction des risques ou d’assurance d’un propriétaire forestier faisant face à un risque de catastrophe naturelle. Notre réflexion part du constat que ces modes de couverture sont rarement utilisés contre les risques naturels. Un tel risque en foresterie se caractérise par un nombre d’états de la nature infini et par une fonction de dommage proportionnelle à la valeur de la forêt. L’article présente des résultats de statique comparative et analyse l’impact sur les décisions privées de subventions versées par l’Etat en cas de catastrophes naturelles. Nous montrons qu’une valeur plus importante du peuplement a généralement un effet ambigu sur le choix des activités de réduction des risques. Cet impact dépend de trois effets : risque, richesse et perte dont le résultat global peut être ambigu. L’effet du coût des activités de gestion des risques dépend des préférences du propriétaire forestier et du caractère risqué ou réducteur de risque de ces activités. Nous démontrons aussi que, si ces activités sont considérées comme un investissement réducteur de risque (risqué), alors plus un propriétaire forestier est riscophobe, plus il choisit un montant d’activités de prévention élevé (faible). Nous montrons également que l’existence d’un programme public d’aide peut inciter les propriétaires forestiers à diminuer leurs activités de prévention ou d’assurance.insurance, risk-reducing activities, public intervention, forest

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

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

Hedging Strategies in Forest Management

The paper focuses on forests management strategies for natural hazards of nonindustrial owners, in the case where the forest provides nontimber services. We introduce a basic two-period model where the private owner manages natural hazards on his forest thanks to the accumulation of savings on his individual income, or to the adoption of sylvicultural practices. We show that: 1/ the harvesting rule, in the presence of amenity services and a random growth rate for forest, is smaller than the one predicted under the Faustmann's rule; 2/ savings and sylvicultural pratices may be seen as perfectly substitutable tools for the management of natural hazards. However, our analysis predicts that the harvesting rule displays a specific sensibility to price effects and/or changes in the distribution of natural hazards, depending on whether forest owners opt for the financial strategy or undertake sylvicultural practices

Vers une composition optimale de la forêt française

L’objectif de cette étude est d’appliquer la théorie de la sélection de portefeuille à la diversité en essences des forêts françaises. Les titres financiers sont ainsi remplacés par les essences forestières. Le portefeuille optimal est celui qui minimise le risque, tout en maintenant la productivité actuelle. L’étude est menée par département et sur 11 essences : épicéa commun (Picea abies), sapin pectiné (Abies alba), pin sylvestre (Pinus sylvestris), pin maritime (Pinus pinaster), mélèze d’Europe (Larix decidua), douglas (Pseudotruga menziesii), chêne pédonculé (Quercus robur), chêne sessile (Quercus petraea), chêne pubescent (Quercus pubescens), chêne vert (Quercus ilex) et hêtre commun (Fagus sylvatica). Les données utilisées proviennent des bases de données de l’Institut de l’information géographique et forestière (IGN). Les sorties du modèle corroborent les recommandations actuelles. À l’échelle nationale, dans la partie méridionale, les auteurs observent une productivité moindre mais aussi une meilleure résistance. À l’inverse, le Nord, actuellement plus productif, est plus sensible aux perturbations. Ces résultats illustrent le fait que certains outils économiques et financiers peuvent être utilisés dans un contexte sylvicole, à des fins d’aide à la décision.The objective of this study is to apply the theory of portfolio selection to the diversity of species in the French forests. Financial assets are thereby replaced by tree species. The optimal portfolio is the one that minimizes risk while maintaining the current productivity constant. The study is conducted per department and on 11 species: Norway spruce (Picea abies), Silver fir (Abies alba), Scots pine (Pinus sylvestris), Maritime pine (Pinus pinaster), European larch (Larix decidua), Douglas fir (Pseudotruga menziesii), Pedunculate oak (Quercus robur), Sessile oak (Quercus petraea), Downy oak (Quercus pubescens), Holm oak (Quercus ilex) and Common beech (Fagus sylvatica). The data comes from databases of the French National Institute of Geographic and Forest Information (IGN). The model outputs are consistent with the current recommendations. At the national level, in the southern part, we observe lower productivity but also better resistance. Conversely, the North, currently more productive, is more subjected to disturbances. The results illustrate the applicability of some economic and financial tools to a forestry setting, for the purpose of decision-making

Are individuals more risk and ambiguity averse in a group environment or alone? Results from an experimental study

Most decision-making research in economics focuses on individual decisions. Yet, we know, from psychological research in particular, that individual preferences can be sensitive to social pressures. In this paper, we study the impact of a group environment on individual preferences for risky (i.e., known probabilities) and ambiguous (i.e., unknown probabilities) prospects. In our experiment, each participant was invited to make a series of lottery-choice decisions in two different conditions. In the Alone condition, individuals made private choices, whereas in the Group condition, individuals belonged to a three-person group and group members' choices were aggregated according to either a majority or unanimity rule. This design allows us to study the impact of a group environment on individuals' attitude towards both risky and ambiguous prospects, while controlling for the decision rule used in the group. Our experimental results show that when individuals are in the Group condition, they tend to be less risk averse and more ambiguity averse than when they are not part of a group (Alone condition). Our experiment also suggests that the decision rule matters as it shows that these two trends tend to be stronger when the group implements a unanimity rule. Specifically, we found that individuals who belong to a group implementing a unanimity rule are significantly less risk averse than individuals who belong to a group that relies on the majority rule. We obtained a similar-but non-significant-result under ambiguity

Risques naturels, prévention et couverture : une application au secteur forestier

Diplôme : Dr. d'UniversiteNatural hazards threaten the forest sector. The windstorms of December 1999 or the heat wave of 2003 have generated huge economic losses for the French private forest owners. Nevertheless, we note that French private forest owners are very little insured and that they implement few prevention actions against such risks. The objective of our research is to understand the origin of this paradox, and more precisely, to analyze the prevention and coverage behaviors of private forest owners. To do so, we rely on the economic literature on risk and insurance. We identify four characteristics of our thematic that can potentially affect the forest owners decisions of prevention and coverage : 1/ the linkage between hazard, amount of loss and forest commercial value, 2/ the uncertainty characterizing the probability of occurrence of some natural risks, 3/ the public compensation in case of extreme disasters and 4/ the dynamic aspect of the forest management. First, the linkage between hazard, amount of loss and forest commercial value leads us to replace the additive risk of standard model with a multiplicative risk. This modifies the standard results of the comparative statics analysis. For example, we show that the low commercial value of a forest can discourage the forest owners to adopt prevention and coverage measures - a result not allowed by standard approaches. Second, we prove that, in case of ambiguity about the probability of occurrence of natural hazards, forest owners ambiguity aversion leads them to increase their demand for insurance and their prevention actions. This effect can’t explain why the level of protection of forest owners against natural hazards is very low. Third, we show that public compensations for extreme disasters reduce forest owners incentives to insure or to undertake prevention activities. The last two results are empirically confirmed by an experimentation. Finally, we propose a dynamic model in which forest owners take prevention, coverage and harvesting decisions simultaneously. We also consider that forest owners value amenity services provided by forest stands. We show that this valuation has two consequences : forest owners increase their prevention and coverage actions and reduce their harvesting.Les risques naturels constituent une menace pour le secteur forestier. Les tempêtes de décembre 1999 ou encore les incendies de l’été 2003 ont engendré des pertes économiques considérables pour les propriétaires forestiers privés français. Toutefois, nous constatons que ces derniers sont très peu assurés et mettent en oeuvre peu de mesures de prévention contre de tels risques. L’objectif de la thèse est alors de comprendre le fondement de cette contradiction et, plus précisément, d’analyser les comportements de prévention et de couverture des propriétaires forestiers privés. Pour cela nous utilisons la littérature d’économie du risque et de l’assurance. Nous mettons en évidence quatre spécificités liées à notre problématique et qui pourraient avoir un effet sur les décisions des propriétaires en matière de prévention et de couverture : 1/ le lien existant entre l’aléa, le montant du dommage et la valeur de la forêt, 2/ l’ambiguïté caractérisant la probabilité d’occurrence de certains risques naturels, 3/ l’intervention publique en cas de catastrophe extrême et 4/ l’aspect dynamique de la gestion forestière. Nous montrons ainsi que la première spécificité, que nous traduisons par l’introduction d’un risque multiplicatif dans les modèles standards de prévention et de couverture, a un impact sur les décisions des agents. Cette spécificité modifie les résultats standards des analyses de statique comparative. A titre d’exemple, nous prouvons que la faible valeur commerciale d’un peuplement forestier peut constituer un frein à la prévention et à l’assurance des propriétaires. Cette explication n’est pas permise par les résultats de l’approche standard. Pour la seconde spécificité, nous prouvons que, en présence d’ambiguïté sur la probabilité d’occurrence de l’aléa, l’aversion à l’ambiguïté des propriétaires les conduit à accroître leur demande de prévention et de couverture. Cet effet ne nous permet donc pas d’expliquer pourquoi les propriétaires forestiers se prémunissent peu contre les risques naturels. Concernant la troisième spécificité, nous mettons en évidence que l’aide publique versée en cas de catastrophe extrême décourage les propriétaires forestiers à se prémunir contre les risques naturels. Ces deux derniers résultats sont par ailleurs confirmés empiriquement à l’aide d’une expérimentation. La dernière spécificité nous conduit à proposer un modèle dynamique au sein duquel le propriétaire prend simultanément des décisions de prévention et de couverture et des décisions de récolte. Nous considérons également que le propriétaire retire une utilité des services d’aménités fournis par la forêt. Nous montrons que la valorisation de ces services par le propriétaire, le conduit à davantage se prémunir et à récolter moins