Abstract
This paper deals with the forest owner’s attitude towards risk and the harvesting decision in several ways. First, we propose to characterize and quantify the forest owner’s attitude towards risk. Second, we analyze the determinants of the forest owner’s risk attitude. Finally, we determine the impact of the forest owner’s risk attitude on the harvesting decision. The French forest owner’s risk attitude is tackled by implementing a questionnaire, including a context-free measure borrowed from experimental economics. The determinants of the forest owner’s risk attitude and harvesting decision are estimated through a recursive bivariate ordered probit model. We show that French forest owners are characterized by a relative risk aversion coefficient close to 1 with a DARA assumption. In addition, we find that the forest owner’s risk aversion is influenced positively and significantly by the level of risk exposure, the geographical location of the forest and the fact to be a forester, and negatively by the income. Finally, we obtain that the forest owner’s risk aversion has a positive and significant impact on the harvesting decision.
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Notes
Due to the lack of data on market risk, we rather focus in this paper on production risk.
Gestion ASsistée des Procédures Administratives relatives aux Risques naturels et technologiques: http://macommune.prim.net/gaspar/.
Under €6,000; from €6,000 to €12,000; from €12,000 to €18,000; from €18,000 to €25,000; from €25,000 to €35,000; from€ 35,000 to €50,000; from €50,000 to €100,000; and over €100,000.
The estimation is done using Matlab, the codes are available from the authors upon request.
Regarding the measure of risk aversion, it is not possible to use the empirical counterpart of the latent variable in the harvesting equation. Indeed, it implies eight parameters to estimate in the case of nine classes of risk, which leads to an identification problem because of the lack of data.
More precisely, 16 forest owners do not answer to the question on income, explaining the number of 308 observations in Table 3.
The empirical distribution among the 7 classes of risk is the following: 43.2% for RA5, 19.1% for RA4, 10.5% for RA3, 5.9% for RA2, 4% for RA1, 8.7% for RN, 8.6% for RP.
All the results are available from the authors upon request.
For example, after the storm Klaus in 2009, the French government provided €415 million for an 8-year program in order to salvage and restore forest stands. The level of the financial support depended on the replanted species and was approximately €2750/ha on average [18].
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Acknowledgments
We are grateful to the European project Newforex, the National Institute of Geographic and Forest Information (IGN), and Région Lorraine that funded the survey. The UMR Economie Forestière is supported by a grant overseen by the French National Research Agency (ANR) as part of the “Investissements d’Avenir” program (ANR-11-LABX-0002-01, Lab of Excellence ARBRE). Finally, this work has benefited from the support of the Agence Nationale de la Recherche of the French government, through the program “Investissements d’avenir” (ANR-10-LABX-14-01).
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Appendix: Maximum likelihood estimation
Appendix: Maximum likelihood estimation
Following Sajaia [50], we show that the probability that y 1i = j and y 2i = 1 or 0:
and
The system of Eq. 1 can be estimated by the maximum likelihood method. Indeed, we assume that (𝜖 1i ,𝜖 2i ) ∼ N(0, Ω) with \( {\Omega }= \left (\begin {array}{cc} 1 & \rho \\ \rho & 1 \end {array} \right )\); thus, we get:
Given that \( \left (\begin {array}{cc} \!1\! & \!0\! \\ \!\gamma \! & \!1\! \end {array} \right ) \left (\begin {array}{c} \!\epsilon _{1i\!} \\ \!\epsilon _{2i}\! \end {array} \right )\!\!\! \sim \!\! N\! \left (0, \left [ \begin {array}{cc} 1 & \gamma \,+\, \rho \\ \gamma \,+\, \rho & \gamma ^{2} \,+\, 2 \gamma \rho \,+\, 1 \end {array} \right ] \right )\) we have:
Similarly, we obtain:
with \(\tilde {\rho } = \gamma + \rho \), ζ = (γ 2 + 2γρ + 1)−1/2 and Φ and Φ2 the univariate and bivariate standard cumulative distribution functions, respectively. If j = 1, then the probabilities above shrink to:
If j = J, then the probabilities above shrink to:
If we assume that the observations are independent, the log-likelihood function can be written as follows:
The maximum weighted likelihood estimator can be written as:
where w is the weighting vector.
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Brunette, M., Foncel, J. & Kéré, E. Attitude Towards Risk and Production Decision: an Empirical Analysis on French Private Forest Owners. Environ Model Assess 22, 563–576 (2017). https://doi.org/10.1007/s10666-017-9570-6
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DOI: https://doi.org/10.1007/s10666-017-9570-6