Forest Sci., Vol. 27, No. 4, 1981, pp.

739-744
Copyright 1981, by the Society of American Foresters
Determination of the Optimal Growing
Stock and Cutting Cycle for an
Uneven-Aged Stand
SUN JOSEPH CHANG
ABSTP. ACT. This paper determines simultaneously the optimal growing stock and cutting cycle
for an uneven-aged ponderosa pine stand by maximizing the forest value. The analysis shows
that the maximization of forest value is the same as the maximization of land expectation value,
thus presenting a unified approach to even-aged and uneven-aged management. The economic
interpretations of reaching the optimal stocking and the optimal cutting cycle are then explained.
The comparative static analyses demonstrate that the optimal growing stock and cutting cycle
are sensitive to changes in interest rate, yet insensitive to changes in stumpage price. FOREST
SCI. 27:739-744.
ADDITIONAL KEY WORDS. Forest value, land expectation value, comparative static analysis.
ALTHOUGH UNEVEN-AGED FOREST MANAGEMENT has been discussed since the
beginning of formal forestry education in this country, research in this area has
been relatively scarce. In their classical work on financial maturity, Duerr and
Bond (1952) discussed the determination of the optimal level of growing stock,
assuming that the cutting cycle will be 1 year. Since then, research in the area
of uneven-aged forest management remained fairly inactive until the early 1970's.
Recently, research interests in this area have increased considerably. For ex-
ample, the U.S. Forest Service has reopened its research station at Crossett,
Arkansas, to study the uneven-aged management of both loblolly and shortleaf
pine and eastern hardwoods. Adams and Ek (1974) discussed the determination
of the optimal level of growing stock, assuming that the cutting cycle will be 5
years. Adams (1976) in a subsequent note further demonstrated the interdepen-
dence of stand structure and best stocking in a selection forest. Remaining un-
answered is the question of determining the optimal growing stock and the optimal
cutting cycle simultaneously.
Ideally, an uneven-aged forest could be viewed as a special case of an even-
aged forest where all the age classes are concentrated on the same area. Intuitive-
ly, one would suspect that the correct method of uneven-aged forest management
should bear some resemblance to that of even-aged management. A comparison
of the similarities and differences inherent in the two situations is in order.
Model for Uneven-Aged Management.--Notation:
Let:
S be the initial stand volume immediately before harvest
G be the level of growing stock immediately after harvest
The author is Assistant Professor, Department of Forestry, University of Kentucky, Lexington,
KY 40546. Research supported by McIntire-Stennis Cooperative Forestry Research Program. Ken-
tucky Agricultural Experiment Station Publication No. 80-8-157. Manuscript received 29 July 1980.
VOLUME 27, NUMBER 4, 1981 / 739
t be the cutting cycle
Q(t,G) be the merchantable volume of an uneven-aged stand t years after a cut
with an initial growing stock of G
P be the stumpage price
r be the interest rate
F.V. be the combined value of the land and the trees.
Given an initial stand volume S, we want to determine the optimal level of
growing stock (G) and the optimal cutting cycle (t) such that the present value
of income received from all timber harvest, both current and future, will be
maximized. Mathematically, our management objective is to maximize the forest
value (F.V.) by simultaneously choosing G and t.
Max F.V. = P(S - G) + P[Q(t,G) - G](e -rt + e -2rt + . . .)
t,G
= P(S - G) + P[Q(t,G) - G]
ert - 1
(1)
The Relationship Between Uneven- and Even-Aged Management.--At first
glance, it is not clear at all why equation (1) is called the forest value (F.V.). To
understand why, we will rearrange (1) as
[.PQ(t,G_) -_ PG _ pG 1 (2) PS + L ert- 1 '
In equation (2), PG represents the opportunity cost of the optimal residual
growing stock. If we call PG the "regeneration cost" and denote it as C, the
terms inside the brackets are nothing but the familiar Faustmann's (1849) formula
of land expectation value (LEV);
LEV = PQ(t,G) - C _ C. (3)
e t- 1
The first term, PS, simply represents the value of the initial stand.
Since a forest consists of land and trees, equation (1) is appropriately termed
the forest value, i.e., the value of the land plus the value of the trees.
Earlier, it was suggested that, since the uneven-aged forest is just a special
case of an even-aged forest, uneven-aged forest management must bear some
resemblance to even-aged management. The resemblance can best be seen when
we realize that S, the initial stand volume, is given and thus fixed. Maximization
of forest value, therefore, is essentially the maximization of land expectation
value.
After nearly 30 years of work by Gaffney (1957), Duerr and others (1956),
Bentley and Teeguarden (1965), and Samuelson (1976), it has been established
that the maximization of the land expectation value is the only correct rotation
choice under even-aged management. Consequently, we may conclude that man-
agement objectives for uneven-aged management and for even-aged management
are identical. Furthermore, all the results obtained in even-aged management
studies about the relationship between the land expectation value model, the
forest rent model, and the biological model apply also to uneven-aged manage-
ment. For example, when the interest rate equals zero, the forest value model
becomes the forest rent model. When interest rate equals zero and the value of
growing stock is ignored, then the forest value model becomes the biological
model of mean annual increment maximization. Thus, the forest value model is
the only correct method of determining the optimal cutting cycle and growing
stock.
740 / Fore, ST SCIENCE
Economic Interpretation of the Optimal Level of Growing Stock and Optimal
Cutting Cycle.---To maximize the forest value or the land expectation value of
an uneven-aged forest, we want to choose the optimal level of growing stock G
and optimal cutting cycle t such that
OF.V. _ P[OQ(t,G)/Ot](e rt - 1) - rertP[Q(t,G) - G] = 0
t (e rt-- 1) 2
OF.V.
OG
-P(-1) + P[OQ(t,G)/OG - 1] = 0.
ert -- 1
(4)
(5)
What are the economic interpretations of equations 4 and 5? From microeco-
nomic theory we know that the optimal input level is reached when marginal
revenue product (MRP) equals marginal input cost (MIC).
Equation 4 can be rewritten as
P[OQ(t,G)/Ot](e rt - 1) - rertP[Q(t,G) - G] = 0 (6)
re rt
or P[OQ(t,G)/Ot] - ert _ i'P[Q(t,G) - G]. (7)
The left-hand side of equation 7, P[O Q(t, G)/O t], represents the MRP of waiting
one more year--the extra revenue one can earn by delaying the cutting cycle 1
reft
year. The right-hand side of equation7, err_ 1-P[Q(t,G) -G] must then repre-
sent the MIC of delaying the cutting cycle 1 year. This cost can be further re-
duced to
re rt r(e rt - 1 + 1)
ert - 1 P[Q(t,G) - G] = ert - 1 P[Q(t,G) - G]
P[Q(t,G) - G]
= rP[Q(t,G) - G] + r
ert -- 1
{ P[Q(t'G) - G] - PG} (8) = rPQ(t, G) + r - - .
The first term of equation (8), rPQ(t,G), represents the opportunity cost of
holding the trees. The second term of equation (8) represents the cost of holding
the land. At the optimal cutting cycle, the extra revenue earned by delaying the
cutting cycle 1 year must equal the cost of holding both the land and the stand
for 1 year. But how much should we harvest?
Equation (5) can be rewritten as
P[OQ(t,G)/OG - 1] = p
ert -- 1
or P[OQ(t,G)/OG - 1] = P(e rt- 1)
or P[OQ(t,G)/OG] = Pe ft. (9)
The left-hand side of equation (9), P[OQ(t,G)/OG], represents the marginal rev-
enue product of leaving one more unit of growing stock in the stand---the extra
revenue the forest owner can make t years later by leaving one more unit of
growing stock in the stand now. The right-hand side of equation (9) represents
the marginal input cost of doing so--the cost of the last unit of growing stock left
in the stand compounded at r percent for t years.
When the extra revenue one can earn t years later by leaving one more unit
Voi. uM 27, NUMBR 4, 1981 / 741
TABLE 1. The optimal combination of t and G and the land expectation value
at different interest rates.
Interest rate Cutting cycle Growing stock
(r) (t) (G) LEV
0.01 9.77 2,693.19 316.22
.015 7.56 1,223.36 156.34
.02 6.25 726.46 95.46
.025 5.35 489.53 65.17
.03 4.68 355.78 47.71
of growing stock in the stand now is greater (less) than the compounded value of
that unit of growing stock, the unit should be added to (removed from) the stand.
Solving for t and G.--Solving for t and G may seem difficult. On the one hand,
the optimal t is affected by the level G chosen (equation 4). On the other hand,
the optimal G is affected by the t chosen (equation 5). Fortunately, the problem
now can be solved with some zero-finding subroutines or a computer provided
that we know the exact functional form of Q(t,G).
Presented below is a case study of the uneven-aged management of a Site
Quality IV ponderosa pine forest based on Meyer's data (1934, p 23). The function
which best describes the growth relationship is the following transcendental pro-
duction function (Halter and others 1957).
Q(t,G) - G = 3.0782 t'977G'a64exp(-5.5948 x 10-at
+ 1.0837 x 10-SG + 2.5276 x 10-7tG) R 2 = 0.9934.
Given this growth function, and a stumpage price of $80 per MBF, we proceed
to determine the optimal cutting cycle and growing stock. To facilitate later ex-
position on the comparison with even-aged management, we attempt to maximize
the land expectation value rather than the forest value since the maximization of
the two are shown earlier to be identical. When the interest rate is 1 percent, the
best combination will be 2,693.19 board feet of growing stock (G) and a 9.77 year
cutting cycle (t), or more practically a 2,700 board feet and 10 years combination.
Every 10 years, roughly 700 board feet (699.66 board feet) of timber can be
harvested from the forest.
The Impact of Changes in Interest Rate.---In the foregoing example, we have
seen that when the interest rate is 1 percent the best combination of t and G is
9.77 years and 2,693.19 board feet. Table 1 shows the optimal combination of t
and G and the land expectation value for interest rates from 1 to 3 percent at 0.5
percent interval. As the interest rate becomes higher, the optimal cutting cycle
becomes shorter and the optimal growing stock level becomes lower. Intuitively,
as the cost of holding capital, i.e., the interest rate, becomes more expensive a
forest owner would want to hold less growing stock for a shorter period of time.
The Impact of Changes in Price LeveL--In the foregoing examples, we derived
the optimal cutting cycle and growing stock when the stumpage price is $80 per
MBF. Would a one-time change in price level cause changes in the optimal cutting
cycle and growing stock? The answer here is "no." The best way to illustrate
this relationship is to observe that if price increase k times, the forest value
formula becomes
F.V. = kP(S - G) + kP [Q(t,G) - G]
ert -- 1
= k P(S - G) + 7 '.
742 / Fomsr ScmNc
TABLE 2. Yield table for an even-aged ponderosa pine stand (site quality IV).*
t (year) 70 80 90 100 110 120 130
Q(t) (bd ft) 8,500 12,200 16,000 19,700 23,100 26,200 29,000
* After Meyer (1938).
If a particular combination of G and t maximizes the forest value at the old
price level, the same combination will also maximize the forest value when
stumpage price is k times more expensive. Therefore, higher price would not
alter the optimal combination of t and G. However, it will affect the absolute
magnitude of forest value.
A Comparison with Even-Aged Management.--Now that the optimal cutting
cycle and growing stock for an uneven-aged stand has been determined, one of
the questions that must be addressed is how well does the uneven-aged manage-
ment compare with the even-aged management. To make such a comparison, we
must contrast the land expectation values for uneven-aged and even-aged stands.
Table 2 presents the even-aged yield table for site quality IV ponderosa pine
stand, also compiled by Meyer (1938). Table 3 presents the land expectation value
of the even-aged stand at various levels of regeneration cost which will result in
the same land expectation value as the uneven-aged management with the fol-
lowing formula:
C = V(t) - (ert - 1) LEV uneven-aged
ert
Given the same stumpage price of $80/MBF at 3 percent interest rate, a regen-
eration cost of $45.16 would result in the same land expectation value as that of
uneven-aged management. When the interest rate drops to 2 percent, the corre-
sponding regeneration cost increases to $131.90. When interest rate drops to 1
percent, the corresponding level of regeneration cost goes up to $410.33.
The results suggest that as the interest rate drops, an increasing sum can be
TABLE 3. Calculation of land expectation value and break-even regeneration
cost for even-age ponderosa pine stand.
r = 3 percent LEV
t 70 80 90
C =40 49.31 53.38 49.34
C= 50 37.91 42.39 38.62
When C = 45.16 LEV = 47.71
r = 2 percent LEV
t 80 90 11210
C= 130 84.01 97.74 96.32
C= 135 77.75 91.75 90.54
When C = 131.90 LEV = 95.46
r = I percent LEV
t 110 120 130
C = 410 307.51 316.69 305.54
C = 420 292.52 302.38 291.80
When C = 410.33 LEV = 316.22
VOLUME 27, NUMBER 4, 1981 / 743
spent on regeneration and that a lower interest rate favors even-aged manage-
ment. The intuitive explanation is that the uneven-aged forest produces small but
frequent revenue while the even-aged forest produces large but infrequent reve-
nue. At high interest rates, the large but infrequent revenue from the even-aged
forest will be discounted heavilY, thus making it look less favorable than the
frequent but small revenue from the uneven-aged forest which suffers less in the
discounting process.
Conclusion.--In the foregoing analysis, the problem of determining the optimal
growing stock and cutting cycle for an uneven-aged forest has been analyzed with
static optimization techniques. The forest value model provides the only correct
method of uneven-aged forest management. The maximization of the forest value,
it is shown, is the same as the maximization of the land expectation value, thus
providing a unified approach to uneven-aged forest management and even-aged
forest management.
Comparative static analysis showed that when the interest declines, the optimal
cutting cycle (t) and the optimal level of growing stock (G) both increase. How-
ever, both t and G are independent of stumpage price.
Unlike the papers by Adams and Ek (1974) and Adams (1976) which concen-
trate on the determination of the optimal stand structure, this paper deals with
the aggregate level analysis of optimal growing stock and cutting cycle. However,
equation (9) provides some guidelines to mark trees for harvest. The equation
suggests that the last tree left behind in the stand must produce an annual growth
rate of r over a t-year period. Consequently, trees that cannot grow at the rate
of r every year for the next t years should be marked for harvest. The results of
this paper thus also shed some insights into the problem of optimal stand structure
selection.
Recently, dynamic optimization by control theory has been quite popular. It
would be very interesting to compare the results obtained by both static and
dynamic analyses to examine the magnitude of the difference and to establish the
merit of the dynamic optimization technique.
LITERATURE CITED
ADAMS, D. M. 1976. A note on the interdependence of stand structure and best stocking in a selection
forest. Forest Sci 22:180-184.
ADAMS, D. M., and A. R. EK. 1974. Optimizing the management of uneven-aged forests. Can J
Forest Res 4:274-287.
BENTLEY, W. R., and D. E. TEEGUARDEN. 1965. Financial maturity: a theoretical review. Forest
Sci 11:76-87.
DUERR, W. A., and W. E. BOND. 1952. Optimum stocking of a selection forest. J For 50:12-16.
DUERR, W. A., J. FEDKIW, and S. GUTTENBERG. 1956. Financial maturity: a guide to profitable
timber growing. US Dep Agric Tech Bull 1146, 74 p.
FAUSTMANN, M. 1849. Calculation of the value which forest land and immature stands possess for
forestry. In Martin Faustmann and the evolution of discounted cash flow, p 18-34. Commonw
Forest Inst Pap 42. Oxford, 1968. Trans. W. Linnard.
GAFFNEY, M. M. 1957. Concept of financial maturity of timber and other assets. NC State Coil,
Dep Agric Econ, Agric Econ Inf Ser 62, 105 p. Raleigh, NC.
HALTER, A. N., H. O. CARTER, and J. G. HOCKING. 1957. A note on the transcendental production
function. J Farm Econ 39:966-974.
MEYER, W. H. 1934. Growth in selectively cut ponderosa pine forest of the Pacific Northwest. US
Dep Agric Tech Bull 407, 64 p.
MEYER, W. H. 1938. Yield of even-aged stands of ponderosa pine. US Dep Agric Tech Bull 630,
60 p.
SAMUELSON, P. A. 1976. Economics of forestry in an evolving society. Econ Inq 14:466-491.
744 / FOREST SCIENCE