Measuring the Impact of Risk Preference on Land Valuation: Evidence from Forest Management

Abstract

Given the extended rotation length of growing trees, price uncertainty and risk preference of forestland owners both play key roles in forest management and should be studied together. However, most existing studies have simply overlooked the varying risk preferences among forestland owners when dealing with price uncertainty. In this study, a heuristic harvest decision approach incorporating varying risk preference was constructed and evaluated. The results indicate that a properly selected level of risk preference may lead to better management performance compared to methods assuming risk neutrality, and the impact of risk preference on forest management varies as market conditions change. (JEL Q23, Q24)