Landowner Behavior: Influence of an Increase in Perceived Risk on the Expected Loss of Early Plantation Harvests

This paper investigates how the uncertainty of future expected values influences decision making among non-industrial private woodlot owners. A model of a red spruce plantation in the context of New Brunswick, Canada, is constructed using stochastic dynamic programming, where risks from natural disasters and market fluctuations are modeled as a Markov process. It is used to investigate whether an increase in perceived risk can justify harvesting plantations much earlier than planned. Findings indicate that no plausible natural disaster scenarios can warrant harvesting substantially earlier than optimal under a risk-free scenario for a risk neutral decision maker. However, the observed sensitivity to the discount rate suggests that early harvesting may reflect the behaviour of a risk-averse landowner confronting increased perceived risk. Such behaviour may result in suboptimal value from the viewpoint of plantation subsidy program managers. These results highlight the importance of reassessing subsidy programs to find the right balance between societal objectives and those of non-industrial private woodlot owners.