2004 Volume 3 Pages 103-124
We analyze effects of trade liberalization on sustainability of forest stand management through a stochastic control model to capture forest owners' harvest decision process under log price stochasticity. We first investigate how change in the amount of the drift and volatility term of price dynamics affects the minimum threshold price level to sustain forest stand management. As a preceded example, the beef price data are used to observe an influence of trade liberalization on the drift and volatility term of the beef price dynamics. Considering the results obtained, simulation analysis is conducted to reveal effects of trade liberalization for timber products on forest stand management. Our experimental results show the following. Introducing trade liberalization results in increase in the price volatility over the short term first. This change then leads to reduction of the minimum threshold price level to sustain the forest stand management. As the minimum threshold price level decreases, we can expect the wider gap between the actual market price and the induced threshold price, which stimulates more timber product supply. Should this occur, the market price would turn to be lower. This change of the market price results in a decreasing trend of the price over the time horizon. Since the decreasing trend of the price pushes the minimum threshold price level up as an inverse effect of the volatility, we expect the more probability of disappearance of timber suppliers from the market.
