Permanent forest investment in a climate of uncertainty

Forest investment
Uncertain like the weather
It may pay to wait

Forestry investment involves long time horizons. Planting decisions must be made amidst a range of uncertainties.

Once planted, a forestry investment is largely irreversible (or is costly to reverse).

Investment irreversibility, along with uncertainty (and ability to learn about the uncertain factors before making an investment decision) may mean it is best to delay planting until some uncertainties are resolved.

These uncertainties also favour shorter lived investments (e.g. in radiata pine) rather than longer term investments (e.g. in native forest).

A decision to plant permanent forest under new legislation may, however, be a preferred outcome if landowners want to bind their successors into keeping the land in native forest.

DOI: doi.org/10.29310/WP.2021.04

Citation

Cortés-Acosta, S and Grimes, A. 2021. “Permanent forest investment in a climate of uncertainty”. Motu Working Paper 21-04. Motu Economic and Public Policy Research. Wellington, New Zealand.