Option valuation of timberland under price uncertainty

Traditional methods of forest valuation assume that management behavior is fixed over time: each timber harvest occurs at a fixed future date regardless of the evolution of timber prices. This study incorporates option value - the ability to delay an irreversible decision - into forest land valuation through an adaptive harvesting strategy. When option value is ignored, long term investments are undervalued. The optimal adaptive harvesting strategy increases the net present value of land between 29.7 and 35.1 percent relative to a fixed rotation strategy